Interest Rate Hiatus? Russia's Central Bank Caught Between a Surge in Inflation and an Economic Slowdown

This Friday, the Russian Central Bank is expected to pause its rate-cutting cycle for the first time since June 2025. Over the past 14 months, it has lowered the key interest rate in 10 steps from 21% to 14%, most recently by 25 basis points on July 24. Twenty-four of the 30 analysts surveyed by the business newspaper RBC expect the Central Bank’s Board to leave the key interest rate at 14%.

The situation has changed in three key ways since July. First, inflation is rising again: According to the statistics agency Rosstat, the annual rate stood at 6.32% at the end of August, up from 5.98% at the end of July. Second, the economy is losing momentum: According to the Ministry of Economic Development, GDP grew by only 0.6% year-over-year in July, down from 1.7% in June. Third, more money is flowing out of ruble investments: According to the Central Bank, net remittances by Russian private individuals abroad doubled from 158 billion rubles—equivalent to about 1.5 billion euros—in January to 321 billion rubles (3.2 billion euros) in June.

Inflation: Fuel and Core Inflation

A major driver of inflation is the rise in fuel prices resulting from Ukrainian drone attacks on Russian refineries. The Russian government was forced to ban the export of gasoline and kerosene. Fuel sales at gas stations are restricted in numerous areas, including the capital, Moscow. According to Rosstat, gasoline costs 20.5% more than it did at the beginning of the year. In its baseline scenario, the central bank expects the fuel effect, along with its knock-on effects, to contribute 1.5 percentage points to annual inflation, and forecasts a rate of 6–7% for December. The 4% target is not expected to be reached until 2027.

Even more concerning to the Central Bank than the rise in fuel prices is core inflation: Core inflation, adjusted for volatile components, accelerated to 7% in July from 5.3% in June, according to calculations by Pavel Biryukov, chief economist at Gazprombank. The money supply is growing at about 13%, faster than the central bank’s forecast of 7% to 12%. Added to this is the exchange rate: Since the July meeting, the ruble has lost about 10% against the dollar, and since September 1, the euro has cost more than 100 rubles for the first time since February 2025. Alexei Sabotkin, deputy head of the Central Bank, said on August 31: “The scope for interest rate cuts had already narrowed during the July round.”

Economy: Arguments for a Further Cut

Proponents of a key interest rate cut point to demand, which is slowing faster than prices. According to the Ministry of Economic Development, GDP grew by 0.6% year-over-year from January through July. The Central Bank forecasts growth of 0% to 1% for 2026 and a decline in gross investment of 1.5–3.5%.

The Kiel Institute for the World Economy takes a much harsher view in its global economic forecast published in early September: “The Russian economy is coming under increasing strain.” The summer’s drone attacks on refineries, online retailers’ logistics centers, and maritime traffic have likely dealt a severe blow to the economy, the report states: “A sharp decline in oil refinery production has led to nationwide fuel shortages, the loss of large quantities of merchandise has cost numerous small retailers their livelihoods and reduced the population’s consumption options, and attacks on ships and port facilities have hampered exports and supply chains in some parts of the country.” For the year as a whole, the institute now expects growth of only 0.4%.

Inflation expectations among Russian households fell from 14.7% to 13.7%. In the labor market, labor shortages are easing, and wage growth is slowing both nominally and in real terms, dampening consumer spending, says Andrei Melashchenko, chief economist at the Moscow-based investment bank Renaissance Capital. Seven out of 30 economists in the Vedomosti consensus therefore expect a cut to 13.75%.

Capital Outflow: More Remittances Abroad

According to the Central Bank’s financial market risk report, foreign currency remittances abroad rose by 50 billion rubles in June to 144 billion rubles, equivalent to 1.4 billion euros.

Ruble transfers grew by 12 billion to 177 billion rubles (1.7 billion euros). The Central Bank characterizes this as a return to the level seen in the second half of 2025. The daily newspaper Izvestia cites the ruble’s devaluation in June and the slump in the Moscow Stock Exchange index as the triggers.

Sources: Russian Central Bank 1, 2, 3, Interfax 1, 2, Izvestia, Kommersant 1, 2, Vedomosti (all RU); IfW Kiel, Ostwirtschaft

Source: German-Russian Chamber of Foreign Trade, “Interest Rate Pause? Russia’s Central Bank Caught Between a Surge in Inflation and an Economic Slowdown,” September 10, 2026.

This article was prepared for the German-Russian Chamber of Foreign Trade.