CBR will Likely Keep the Key Rate Stable on February 13
Bottom Line: Following the Central Bank of Russia’s (CBR) 50 bps cut to 16% on December 19—driven by an accelerated disinflationary trend in Q4—we expect the CBR to hold the policy rate at 16% on February 13. This cautious stance is anticipated as the Bank monitors inflationary risks, including the VAT hike in 2026, surging food prices, robust lending activity, and elevated inflation expectations as we envisage a hike in inflation in January. Our year-end key rate forecast is 13% for 2026 as Russia will likely maintain high real yields to support the economy.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – January 2026
Source: Continuum Economics
Following the Central Bank of Russia’s 50 bps cut to 16% on December 19—precipitated by an accelerated disinflationary trend in Q4—we expect the Bank to hold the policy rate constant on February 13. This pause is driven by mounting inflationary risks, most notably the VAT hike from 20% to 22% for 2026. Finance Minister Anton Siluanov had signaled that this increase, intended to fund rising defense and security spending, could add approximately 1% to consumer prices in 2026.
Furthermore, inflation expectations have edged higher and remain a primary concern, alongside robust lending activity and uneven price dynamics. With a projected spike in inflation for January, the CBR will likely act cautious before committing to further rate cuts.
According to the CBR’s forecast, annual inflation is projected to decline to 4.0–5.0% in 2026, with underlying inflation expected to hit the 4% target by the second half of the year.
However, we believe achieving this target band in 2026 will be challenging since the disinflationary process will take longer than the CBR anticipates due to the persistent impact of sanctions, the adverse effects of the VAT hike, and continued high levels of military spending. Consequently, we expect monetary policy to remain restrictive for an extended period. Further key rate decisions will likely be contingent on the sustainability of the inflation slowdown and the stabilization of inflation expectations.
Our projection for average headline inflation in 2026 remains at 6.2%. We anticipate that the CBR will only resume moderate rate cuts provided the inflation trajectory improves and inflation expectations begin to converge toward the Bank’s forecasts.
Our end-year key rate forecast is at 13% for 2026, since Russia will have to keep rates high as the country need higher real yields.