Slow down: The Central Bank will take a pause in reducing the key rate in early 2026.

The Bank of Russia lowered its key rate by 0.5 percentage points to 16% following the results of the last meeting this year. At the same time, as early as the first quarter of 2026, the Central Bank may suspend monetary policy easing, analysts interviewed by Izvestia believe. They expect that the regulator will closely monitor the dynamics of inflation at the beginning of the year. Nevertheless, by the end of 2026, the rate is expected to reach 12-13% anyway. How the Central Bank's policy will affect the economy is in the Izvestia article.

Why did the Bank of Russia lower its key rate

The central bank lowered the key rate to 16% per annum following a meeting on December 19. In October, the regulator also lowered the rate by only 0.5 percentage points, although before that it had been easing the policy faster.

The pace of price growth in November slowed from 6.6% to 4.6%, the Central Bank said. Inflation expectations, which had remained high before, have increased slightly in recent months. Nevertheless, the annual inflation rate as of December 15, according to the regulator, was 5.8%.

As stated by the head of the Bank of Russia, Elvira Nabiullina, the economy will come out of overheating in the first half of 2026. It is gradually cooling down, although economic activity is growing at a moderate pace, according to a press release from the regulator. Domestic demand is supported by an increase in household incomes, increased lending and budget expenditures.

At the same time, labor market tensions are gradually decreasing, the Central Bank noted. According to surveys, the share of enterprises experiencing staff shortages continues to decline. But unemployment still remains at historic lows (about 2.2%), and wage increases continue to outpace productivity growth.

The risks of price acceleration still prevail over the possibilities of their slowdown — among the pro-inflationary factors, the Central Bank named tax changes, high inflation expectations and deteriorating terms of foreign trade. The regulator also noted the uncertainty due to the geopolitical situation.

At the same time, Vladimir Putin, summing up the results of the year in Gostiny Dvor, noted that the VAT increase would not last forever. It is planned to reduce it in the future, the president stressed. In addition, the tax changes should not create problems for the manufacturing business.

According to the Central Bank's forecast, inflation in the second half of 2026 will reach the target 4%.

How will the Central Bank's decision affect GDP, loans and the ruble exchange rate

The realization of inflationary risks may require pauses in lowering the key rate, Elvira Nabiullina stressed at a press conference following the meeting on December 19. There will be no reduction in the key "in autopilot mode," she said.

— We will constantly evaluate changes in all key parameters of the Russian economy and the external environment, and, if necessary, adjust the trajectory of our movement. In particular, the focus for the near future is how business prices will respond to tariff increases," said the head of the regulator.

The Central Bank may slow down the pace of reducing the key rate at the beginning of next year, experts interviewed by Izvestia believe. The regulator is likely to take a pause until the third decision in 2026, which is scheduled for April 24. The Bank of Russia will start further easing its policy only in the second quarter, according to Anton Tabakh, chief economist at Expert RA rating agency.

Currently, there is still room for significant mitigation of PREP, said Lev Denisov, Director of the Department of Macroeconomic Analysis and Forecasting at the Russian Ministry of Economic Development.

The Central Bank will monitor how the tax changes, which will take effect in early 2026, will affect not only prices, but also inflation expectations, said Vladimir Chernov, analyst at Freedom Finance Global. This factor should be reflected in the statistics in the first months of the new year, therefore, at the February meeting, the regulator will not yet have enough data to confidently lower the rate. Then the Central Bank will be able to move to a more active reduction, said Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam.

In the coming months, a reduction in the key rate will rather support the economy, but will not lead to a reversal of the trend towards a slowdown in GDP growth, said Vladimir Chernov, analyst at Freedom Finance Global. Moreover, their maximum cooling is expected in the first half of 2026, and only after that growth is possible, said Anton Tabakh, chief economist at Expert RA rating agency.

In 2026, GDP may grow by about 1.2%, Olga Belenkaya said. Growth of more than 2% per year will return in 2027, when the rate will be reduced to 10-12%, expects Olga Gogaladze, an expert on financial markets.

By itself, policy easing only creates more favorable conditions for business by reducing loan rates, explained Vladimir Chernov. More decisive steps by the Central Bank to reduce consumption in the future will help to maintain consumption levels in the Russian Federation, while the effect will not be so obvious.

Loan rates for individuals and mortgages will also drop, which will support consumer activity, said Viktor Grigoriev, chief analyst at Bank Saint Petersburg. According to him, the rate cut at the last meeting by 0.5 percentage points was already included in most banks' products. In the future, the market will be guided by expectations from future decisions of the Central Bank.

The ruble will trade in the range of 78-83 per dollar by the end of the year and at the beginning of 2026, predicts Mikhail Vasiliev, chief analyst at Sovcombank.

A strong national currency helps reduce inflationary pressure because it makes imported goods cheaper. Nevertheless, inflation may accelerate by February 2026, Denis Popov, managing expert of the PSB Center for Analytics and Expertise, predicted. In recent years, government spending has been growing in the first quarter, and the coming year will be no exception, he added. This factor will also lead to a one-time price increase.

However, by the end of 2026, the rate may drop to 12-13%, Olga Belenkaya admitted. According to her, this generally fits into the Central Bank's baseline forecast — such a scenario is possible with a gradual slowdown in inflation over the course of the year.