Key Interest Rate Remains at 14%: Russian Central Bank Prepares for a Prolonged Period of High Interest Rates
On October 23, the Russian Central Bank left its key interest rate unchanged at 14% for the second consecutive time. At the same time, it significantly raised its forecast for the average key interest rate next year: from 10.5–12.5% to 12.5–13.5%. The central bank now expects year-end inflation to range from 7.1% to 7.6%, up from its previous forecast of 6% to 7%.
Central Bank Governor Elvira Nabiullina (pictured) commented on the decision as follows: “Core inflation remains elevated, and inflation expectations in the economy are near the highs of recent years. Unfortunately, this situation may persist longer than we had anticipated in July. For inflation to return to 4%, we therefore need a longer period of moderately tight monetary policy conditions.”
Nabiullina cited temporary losses of production capacity in certain sectors due to Ukrainian drone attacks. The central bank now expects the lost capacity to resume operations only sometime in 2027. Previously, it had anticipated a recovery by the end of 2026.
Elvira Nabiullina does not see any risks to financial stability, even though some large companies are struggling with debt. The proportion of companies whose operating profits do not cover interest expenses rose only slightly as of July 1. This did not play a role in the interest rate decision.
Since June 2025, the central bank had lowered the key interest rate in ten steps from 21% to 14% in July. In September, it paused the rate cuts for the first time. The vast majority of analysts had anticipated the current decision. According to Central Bank Governor Elwira Nabiullina, keeping the rate unchanged was the only option seriously under consideration. Some central bank experts even advocated for a rate hike.
More Inflation, Less Growth Next Year
Inflation accelerated over the summer. In the third quarter, consumer prices rose by 8% on a seasonally adjusted, annualized basis, up from 4.8% in the second quarter.
Core inflation rose from 4.5% to 6.2%. On October 19, annual inflation stood at 6.8%. Fuel prices, in particular, continued to drive up prices. In addition, according to Nabiullina, the increase in municipal utility rates effective October 1 was slightly higher than expected.
The central bank now expects inflation for 2027 to average 5.2–5.7%; its previous forecast was 4.3–5.2%. Nevertheless, the central bank is sticking to its target of 4% by the end of 2027. The analysts surveyed by the central bank before each meeting are more skeptical: on average, they still expect inflation to be 5% by the end of 2027.
The central bank projects the key interest rate to average 14.6% in 2026 and 9% to 10% in 2028, up from the previous range of 8–9%. There is still room for rate cuts next year, says Nabiullina, but that room has narrowed.
The central bank narrowed its growth forecast for the current year to 0.5–1%. In July, it had not ruled out stagnation, projecting a range of 0–1%.
Private consumption was the deciding factor: It is expected to grow by 3–3.5% in 2026, rather than by just 1.5–2.5% as previously anticipated. The economy will grow moderately in the second half of the year, and production has recently picked up in many sectors, Nabiullina said. For 2027, however, the central bank lowered its GDP forecast by half a percentage point to 1–2%. According to the forecast, investment will stagnate or decline by up to 1% this year.
Business Association Calls for a Signal of Growth
The Russian Union of Industrialists and Entrepreneurs (RSPP) would have liked to see more. Union President Alexander Shokhin told the TASS news agency that the Central Bank could have symbolically cut the interest rate by 50 or 25 basis points. This would not have affected the economy or lending, but it would have signaled the direction. RSPP Vice President Alexander Murychev describes investment as “practically stalled.” Loans for projects with a payback period of five to ten years are prohibitively expensive. Companies are taking out loans primarily to restructure their debt. According to Murytchev, the number of corporate bankruptcies rose by 11% to 3,547 in the first half of the year.
Vasily Astrov, a Russia expert at the Vienna Institute for International Economic Comparisons (wiiw), calls the interest rate freeze “naturally detrimental” to an economic recovery in Russia.
The central bank has not sent any positive signals ahead of its upcoming meeting on December 18. Olga Belenkaya, head of the macroanalysis department at the investment firm Finam, expects another pause but does not rule out a 0.25% cut.
Source: Russian Central Bank 1, 2, 3, Finam, Kommersant, TASS, RSPP (all RU); wiiw
Source: German-Russian Chamber of Foreign Trade, Key Interest Rate Remains at 14%: Russian Central Bank Prepares for a Prolonged Period of High Interest Rates, October 27, 2026.
This article was prepared for the German-Russian Chamber of Foreign Trade.
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