Russia lowered interest rates for the fifth consecutive time, to 16%.

Inflation has cooled, but challenges remain.

The CBR's decision is in line with analysts' forecasts. According to CBR estimates, Russia's annual inflation rate as of December 15th was5.8%Russian President Vladimir Putin predicted that this figure could fall to 5.6% this year, from 9.5% last year.

However, CBR Governor Elvira Nabiullina was cautious, saying it was too early to declare victory in the fight against inflation. She likened the battle to a marathon, saying "the second half is always harder than the first," and emphasized that "one month of low inflation is not enough."

Policymakers predict inflation will surge in early 2026 due to the increase in value-added tax (VAT), but will then fall back and reach target.4%in 2027.

Policy response and economic outlook

Speaking at a press conference, President Putin attributed the slowdown in the Russian economy to the CBR's tight monetary policy. However, he insisted he would not interfere with the central bank's decisions and praised the way the institution was acting "very responsibly."

The CBR announced it will maintain a tight monetary policy for an extended period to bring inflation back to its target level. The agency also noted that "geopolitical factors" remain unpredictable. After five cuts, Russia's interest rates have fallen a total of 5 percentage points from their peak of 21%.

High interest rates are considered one of the reasons for the slowdown in the Russian economy. The International Monetary Fund (IMF) forecasts that the Russian economy will only grow.0.6%This year and 1% next year, following a 4.3% increase in 2024. Alongside this, defense spending in 2024 is projected to be equivalent to more than 7% of GDP.

Following the announcement of the interest rate cut, the ruble appreciated against the USD and the yuan. Analysts expect the CBR to continue cutting interest rates in the future, but at a slower pace.