Bank of Russia cuts key rate to 15.5% as growth concerns outweigh inflationary warning

The Bank of Russia reduced its benchmark interest rate by 50 basis points to 15.5%, marking the sixth consecutive cut in its easing cycle as officials leaned toward bolstering fragile domestic demand. Policymakers said economic vulnerability and the need to ease financing strains for companies were decisive factors, despite recent signs of faster consumer price growth. The size and timing of the reduction surprised many market participants and underscored the central bank’s willingness to act preemptively to support activity. For businesses, the cut should lower borrowing costs and provide some short-term relief for liquidity-constrained firms, although longstanding credit frictions and risk premiums mean lending conditions may not normalize quickly. The decision creates a policy trade-off: looser monetary setting can sustain output but risks reinforcing inflationary momentum and complicating the task of anchoring expectations. Market channels will be important — the ruble and yields may react to shifting rate differentials, potentially amplifying inflationary pressures if currency weakness feeds import prices. The move also resets planning for fiscal and corporate actors, who face a slightly easier cost of capital but must weigh a more uncertain price backdrop. Compared with some peers that enjoy subdued price pressures and can ease with fewer trade-offs, Russia’s central bank faces a narrower path and greater dependency on incoming data to justify further easing. Credit quality and bank margins will be key transmission factors: banks may be cautious in expanding riskier lending without stronger signs of recovery, which could limit the cut’s pass-through. International investors are likely to interpret the step as a signal that near-term growth stabilization is being prioritized, with implications for capital flows and exchange-rate volatility. Going forward, the Bank of Russia’s next decisions will hinge on the interplay between output indicators, wage dynamics and inflation persistence; if price growth remains elevated, the easing cycle could be paused or partially reversed.