Russian Central Bank Reiterates Inflation Concerns Amidst Economic Slowdown

Central Bank Highlights Elevated Inflationary Pressures

The Central Bank of Russia (CBR) has recently underscored that inflationary pressure within the Russian Federation remains elevated, even as the nation experiences a gradual slowdown in economic growth. This assessment comes as the CBR continues its efforts to guide annual inflation towards its long-term target of 4%.

As of October 2025, the annual inflation rate in Russia stood at 7.8%, a slight decrease from 8.0% in the previous month. Earlier in December 2025, the Economy Ministry reported a further easing to 6.61%. However, these figures still significantly exceed the central bank's target. The CBR anticipates that annual inflation will fall within the range of 6.5–7.0% by the end of 2025 and is projected to decline to 4.0–5.0% in 2026, with a return to the 4% target expected by the second half of 2026.

Monetary Policy and Key Rate Adjustments

In response to these persistent inflationary risks, the Central Bank has maintained a firm stance on monetary policy. Governor Elvira Nabiullina has been instrumental in navigating the economy through periods of high inflation. The CBR has made several adjustments to its key interest rate, which had reached a high of 21% in October 2024. Subsequent rate cuts saw it reduced to 18% in July 2025 and further to 16.50% in October 2025. The bank has indicated that it 'will maintain monetary conditions as tight as necessary to return inflation to the target,' implying a 'long period of tight monetary policy.'

Factors Contributing to Inflation and Economic Growth Outlook

Several factors are identified as contributing to the ongoing inflationary pressures:

• Robust government spending, particularly on military outlays.
• Labor shortages and rising wages, which outpace labor productivity.
• Domestic demand significantly outstripping the capabilities to expand the supply of goods and services.
• One-off pro-inflationary factors, such as increased motor fuel prices and a faster-than-usual rise in fruit and vegetable prices, along with anticipated VAT increases.

Regarding economic growth, Russian President Vladimir Putin stated in December 2025 that Russia's GDP growth is expected to be around 1% for the year. This aligns with forecasts from the CBR and Sberbank, which project GDP growth of 0.5-1.5% for 2026. The International Monetary Fund (IMF) had previously lowered its forecast for Russia's economic growth in 2025 to 0.6%. The CBR acknowledges that the economy is 'gradually returning to a balanced growth path,' but the 'upward deviation of the Russian economy from a balanced growth path is narrowing.'

Future Outlook and Challenges

The Central Bank's future decisions on the key rate will depend on the sustainability of the inflation slowdown and the dynamics of inflation expectations. While there are signs of easing in the labor market and a strengthening ruble, the overall economic outlook remains subject to significant pro-inflationary risks and external factors. The bank's commitment is to ensure that inflation returns to its target, even if it means a prolonged period of tight monetary conditions.