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Russia  ·  Chronicles · Klaus Dormann

Russia's Central Bank Cuts Its Key Interest Rate Only Slightly

June 22, 2026  ·  18 min read  ·  By Klaus Dormann  ·  Original (German)
Russia's Central Bank Cuts Its Key Interest Rate Only Slightly

Author: Klaus Dormann

Four of the five leading German economic research institutes have also published new forecasts for the Russian economy as part of their “summer forecasts” since June 11 (DIW Berlin, IfW Kiel, IWH Halle, ifo Institute Munich). Six months before the end of the year, these forecasts reveal surprisingly large differences. The Munich-based ifo Institute now even expects a “recession” in Russia this year: It has drastically lowered its forecast for the development of aggregate economic output and now anticipates that real gross domestic product will contract by 0.7 percent in 2026.

The central bank cut its key interest rate by only 25 basis points to 14.25 percent

If the Russian Central Bank had expected a decline in GDP as sharp as that projected by the ifo Institute, it would likely have cut its key interest rate more sharply on Friday. However, the central bank anticipates continued growth in Russia. In its “medium-term forecast,” it projects that the Russian economy will grow this year at a rate between 0.5 and 1.5 percent.

This is likely one reason why it lowered its key interest rate on Friday by only 0.25 percentage points, from 14.5 to 14.25 percent. In surveys conducted prior to the interest rate decision, however, the vast majority of analysts had expected another cut of 0.5 percentage points to 14% (see preliminary report on the interest rate decision for the German-Russian Chamber of Foreign Trade).

Russian Central Bank’s Key Interest Rate in Percent per Year

Trading Economics: Russia Key Interest Rate, June 19, 26

The business association had called for a cut of one percentage point

Alexander Schochin, chairman of the Russian Union of Industrialists and Entrepreneurs (RSPP), called for a cut in the key interest rate by a full percentage point to 13.5% ahead of the decision. Schochin justified his call by citing falling inflation and the increasing burden on businesses due to high financing costs. He pointed to the slowdown in the annual inflation rate to 5.3% in May. Against this backdrop, he said, a one-percentage-point interest rate cut would be a “logical step” (RSPP press release; russland.capital.de).

Year-over-year increase in consumer prices, in percent

Trading Economics: Russia Inflation Rate, June 19, 2026

Schochin expressed his disappointment with the modest cut in the key interest rate (RSPP press release):

“This is indeed disappointing. Just yesterday and in the days before, including at the International Economic Forum in St. Petersburg, I called for a more aggressive interest rate cut, with the goal of reaching a single-digit key interest rate—that is, below 10%—by the end of the year.”

Analysts’ comments on the modest key interest rate cut

Natalia Orlova, chief economist at Alfa Bank, commented diplomatically on the key interest rate decision:

“The good news is that interest rate cuts are continuing. The bad news is that the magnitude of the cut has decreased—which reflects the growing pro-inflationary risks in the economy.”

Economist Kirill Rodionov views the modest cut in the key interest rate as a solution to a dilemma facing the central bank. On the one hand, he noted, the central bank cannot lower key interest rates quickly due to the increased inflation risks resulting from fiscal policy easing. On the other hand, however, it could not ignore the calls for key interest rate cuts that were voiced during a meeting with President Putin. “The risks of a further increase in the budget deficit will, in any case, make the central bank’s task even more difficult,” Rodionov emphasized. (The Moscow Times.ru).

Sofia Donets, chief economist at T-Investments, said the modest rate cut was a sign that the central bank’s “conservatism” had hardened. If this slow pace of key interest rate cuts continues through the end of the year, the key interest rate will remain above 13% in 2026.

Investment banker Yevgeny Kogan agreed with this assessment. He pointed to the central bank’s warning that a growing budget deficit would require a more restrictive monetary policy. “I think this means we’ll still be living with double-digit interest rates next year. The central bank’s key rate forecast of 8 to 10% for 2027 might as well be forgotten,” said Kogan (The Moscow Times; Finam.ru).

Central Bank Warnings About Persistently High Budget Deficits

In explaining the modest rate cut, the central bank cited developments in fiscal policy as the primary reason. Central Bank Governor Nabiullina stated in her remarks on the key interest rate decision that “inflationary risks” had increased significantly. Her reasoning:

“Over the next three years, fiscal policy will be more expansionary than assumed in the Bank of Russia’s baseline scenario.

Credit growth has accelerated noticeably in recent months.

This may limit the scope for a further key interest rate cut, which is why we have taken a more cautious approach today.”

The annual increase in consumer prices rose to 5.6% in mid-June

Regarding the increased inflation risks, the Central Bank also cited the rise in fuel prices. The “pro-inflationary risks” have increased due to a decline in fuel production resulting from Ukraine’s attacks on Russian refineries, the bank explained. Reuters reports that Russia’s gasoline production in June was about 25% lower than a year ago. The average price of gasoline in Russia has risen by 6.6% since the beginning of the year.

President Elvira Nabiullina said at the press conference (video, starting at min. 14) that the rise in gasoline prices had been “one of the main reasons” for the moderate cut in the key interest rate of just 25 basis points. “The recent rise in fuel prices will affect inflation in June. The government is taking the necessary measures, but it may take some time for the supply situation to return to normal,” she added. Nabiullina emphasized: “The rise in gasoline prices could also affect inflation expectations, as gasoline is a relatively sensitive commodity for both individuals and businesses” (The Moscow Times).

In its press release, the Central Bank noted that the annual increase in consumer prices reached 5.6% as of June 15. In the following chart from the VEB Institute, the line formed by black circles shows the trend in consumer prices through June 8, when the inflation rate stood at 5.5 percent after falling to 5.3 percent in May (see also Trading Economics).

Consumer price trends (black line)
and industrial producer price trends (red line);
year-over-year changes in percent

Research Institute of the State Development Corporation VEB.RF:
Global Economy and Markets, June 11, 26

However, the Central Bank reaffirmed its forecast that inflation will ease to between 4.5% and 5.5% by the end of 2026 and reach the target of 4% by the end of 2027.

Nabiullina: GDP is expected to have grown by 0.3 percent in the first half of the year

Commenting on current economic developments, the Central Bank President noted that economic indicators had improved in the second quarter, as expected. Factors that had temporarily slowed growth at the beginning of the year—including calendar and weather effects—are no longer having an impact or are now even accelerating growth. In particular, the construction sector has seen a “slight recovery” in production.

Looking at overall economic performance in the first half of 2026, Nabiullina said, “moderate growth” in the production of goods and services can be observed. In response to a question at the press conference regarding the current growth of the Russian economy, the president stated that the Central Bank estimates annual economic growth for the period from January to April at 0.3%. Economic activity also increased in May. The Central Bank also expects economic growth of around 0.3 percent for the first half of the year as a whole (video, starting at min. 34).

At the same time, however, the President noted that disparities in the performance of different economic sectors have widened. On the one hand, growth in government demand is increasing significantly. On the other hand, however, the potential for growth in private investment and consumer demand is declining due to limited resources.

According to the Central Bank’s press release, however, growth in consumer demand has accelerated in recent months. Investment activity has since recovered slightly following its slowdown in early 2026. It remains subdued, however.

According to Nabiullina, the situation on the labor market is slowly easing. She emphasized that a sustainable reduction in cost and price pressures stemming from the labor market requires a further narrowing of the gap between wage growth and labor productivity through the optimal utilization of the workforce.

How Real GDP Developed in the First Four Months

On June 9, the Institute for Economic Forecasting of the Russian Academy of Sciences published an informative chart on the development of real gross domestic product in the first four months of 2026 in its monthly “Analysis of Short-Term GDP Dynamics.” The black line shows that the real gross domestic product index, which had reached a new high at the end of 2025, plummeted in January. However, it recovered significantly in the following three months. According to the Institute’s estimate, the GDP index in April was roughly back to the level seen in October.

Estimate of the real gross domestic product
index: black line—estimate of the real GDP index for the Russian Federation, January 2019 = 100
; blue bars—estimate of the year-over-year change in the real GDP index in %

IEF RAS: Analysis of Short-Term GDP Dynamics: June 2026, June 9, 2026

The right-hand blue bar shows that, according to the Institute’s estimate, the GDP index in April 2026 was 1.9 percent higher than in the same month of the previous year (right-hand scale).

GDP forecasts by German institutes now range from +1.0 to –0.7 percent

In their “Spring Forecasts” published three months ago in mid-March, German economic research institutes were still largely in agreement regarding this year’s growth of the Russian economy. They expected Russia’s aggregate economic output to rise by between 0.9 percent (DIW Berlin) and 1.3 percent (“escalation scenario” by the ifo Institute) in 2026. In their “Joint Assessment” published on April 1, the institutes agreed that, following 1.0 percent growth last year, the Russian economy was likely to grow by 1.1 percent this year.

Three months later, however, there is no longer any sign of broad consensus. The Berlin-based “German Institute for Economic Research” and the “Leibniz Institute for Economic Research Halle” revised their forecasts for this year’s growth in the Russian economy only minimally, by 0.1 percentage points each. The DIW and IWH now both expect the Russian economy to grow by 1.0 percent in 2026 as well. Incidentally, this forecast is also shared by the “Eurasian Development Bank,” which has now published its semi-annual update of economic forecasts for its member countries, including Russia.

Following the IfW Kiel, the ifo lowered its forecast for Russia even more sharply

However, the Kiel Institute for the World Economy and, above all, the Munich-based ifo Institute have sharply lowered their forecasts for Russia’s economic growth this year in their “Summer Forecasts.” The IfW revised its forecast down from 1.0 percent to just 0.2 percent (as reported by Ostwirtschaft.de).

The ifo Institute now even sees Russia’s economy entering a recession this year. It expects real gross domestic product to decline by 0.7 percent year-over-year (ifo Schnelldienst; Table 1.1, page 7). In its “Spring Forecast,” however, the Munich-based institute had still projected growth ranging from 0.9 percent (“pre-war scenario”) to 1.3 percent (“escalation scenario”) across three scenarios. Unfortunately, no explanation is provided for this significant “downward revision.”

However, the ifo Institute expects 2 percent growth in Russia in 2027

Following this year’s “plunge” into recession, however, the ifo Institute anticipates a rapid recovery of the Russian economy next year. It assumes that Russia’s real gross domestic product will rise by 2.0 percent in 2027. The other German institutes, on the other hand, expect GDP growth next year of only between 0.5% (IfW Kiel) and 1.2% (IWH Halle).

Looking at the years 2026 and 2027 together, the ifo Institute expects more growth in Russia than the IfW in Kiel, which—following very weak growth this year (+0.2%)—does not anticipate any significant acceleration next year either (+0.5%).

The RWI in Essen has not yet published any new forecasts for the Russian economy in its economic reports this summer (RWI spring forecast for Russia’s growth in 2026: +0.8%).

GDP Forecasts for Russia 2024–2027
: Year-over-year change in real gross domestic product, in percent

Sergey Aleksachenko: GDP growth of 1.0% is unlikely in 2026

However, in an analysis for the London-based “New Eurasian Strategies Centre,” Sergey Aleksachenko, former Deputy President of the Russian Central Bank, considers it unlikely that Russia will again achieve 1 percent economic growth in 2026 (as expected by the DIW and IWH).

According to Aleksachenko, if one extrapolates the GDP decline in the first quarter of 2026 compared to the fourth quarter of 2025 to an annual rate, this results in an “annualized” decline in Russian economic output of 6.4 percent in the first quarter of 2026 compared to the previous quarter (right red bar, left scale).

Real Gross Domestic Product Growth Rates 2021–2026
Left scale: annualized rates of change compared to the previous quarter in %;
right scale: real gross domestic product index, 4th quarter 2020=100

New Eurasian Strategies Centre; Sergey Aleksashenko, Senior Research Fellow: “The Illusion of Normalization: Tensions in the Kremlin Have Eased, but Anxiety Remains,” June 16, 2026

According to Aleksashenko’s calculations, in order to achieve 1 percent GDP growth year-over-year from 2025 to 2026, “annualized” growth rates of around 4 percent would need to be achieved in each of the remaining three quarters of 2026. This is unlikely, because such high growth rates were only consistently recorded during the period of rapid increases in military spending from mid-2022 to early 2024, as the figure above shows.

Recommended reading:

Monetary Policy: Key interest rate cut from 14.5 to 14.25 percent on June 19

Preliminary reports on the key interest rate decision on June 19

Current Economic Developments; Economic Data for April, May, and June

Economic Forecasts: Summer Forecasts from German Institutes

Discussion contributions on the Kiel Report: “Is Russia’s Economy on the Brink of Collapse?”

Reports on the Kiel Report: “Endgame: Russia’s Economy Under Pressure”

Further Forecasts

Fiscal Policy; National Budget and Oil Prices

Foreign Trade

Translated from the German original published on ostwirtschaft.de, June 22, 2026.

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