Russia Cuts Key Interest Rate, Warns Of Tepid Growth

Published: Friday, October 24, 2025 at 12:42 pm

Russia Cuts Interest Rate Amid Economic Slowdown

Moscow's central bank has reduced its key interest rate, citing a slowdown in economic growth and the impact of the ongoing conflict in Ukraine and Western sanctions. The bank lowered the borrowing rate to 16.5 percent from 17 percent, signaling a shift in monetary policy.

The central bank now anticipates lower growth and higher inflation for a more extended period than previously projected. The Russian economy, fueled by increased military spending, is showing signs of strain. The bank's governor, Elvira Nabiullina, indicated that the period of rapid growth is unsustainable.

The bank has revised its economic growth forecast for the current year to a range of 0.5 to 1 percent, a decrease from the previous estimate of 1 to 2 percent. Businesses have expressed concerns about the high borrowing costs, which they believe are hindering economic expansion. While acknowledging the challenges faced by small and medium-sized businesses, the central bank defends the high rates as necessary to combat inflation, which remains above the bank's target.

Independent economists are warning of potential economic stagnation in the coming year. The slowing growth has placed pressure on Russia's public finances, prompting the government to seek additional revenue. The finance ministry has proposed raising the value-added tax (VAT) to 22 percent. The central bank expects the VAT increase and rising gasoline prices, due to Ukrainian strikes on oil refineries, to contribute to inflation. Trade tensions and increased Western sanctions are also contributing to price increases. The United States recently imposed new sanctions on Russia's energy sector, targeting major oil producers.

BNN's Perspective:

The central bank's actions reflect the complex economic challenges facing Russia. While the rate cut may offer some relief to businesses, the underlying issues of inflation, sanctions, and the ongoing conflict pose significant risks. The government's fiscal measures, such as the proposed VAT increase, will likely be met with mixed reactions. Navigating these economic headwinds will require careful management and a willingness to adapt to evolving circumstances.

Keywords: Russia, interest rate, economy, growth, inflation, sanctions, Ukraine, central bank, VAT, economic forecast, monetary policy, Elvira Nabiullina, economic stagnation, public finances, gasoline prices, US sanctions

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