Russia’s central bank cut its key interest rate from 16.5% to 16% on Friday, amid slowing growth as the Russian economy suffers the consequences of the attack on Ukraine and Western sanctions.
The central bank said in a statement: “On December 19, 2025, the Board of Directors of the Bank of Russia decided to cut the key rate by 50 basis points, to 16%.” It added that it “will maintain tight monetary conditions necessary to bring inflation back to the target of 4% per year, after it reached 6.6% in November.”
Growth in military spending with the launch of the large-scale attack against Ukraine in February 2022 contributed to boosting growth in an initial phase, but it also strongly fueled inflation, leading to an increase in the interest rate and thus making the cost of borrowing expensive.
Expectations for Russia’s GDP growth
Despite the slowdown in inflation in recent months, the central bank still expects GDP growth of between 0.5% and 1% in 2025.
Russian President Vladimir Putin said at his annual press conference on Friday: “We must make every effort to ensure that the Russian economy, the macroeconomy, is healthy and resilient, and that the country’s economy has a solid foundation.”
The Russian government statistics agency recently estimated that the inflation target of 4% will not be achieved until 2027. In this context, the Kremlin is seeking to mobilize the help of citizens and businesses to reduce the budget deficit, which has approached $50 billion since the beginning of the year. Putin, in particular, has approved an increase in the value-added tax from 20% to 22% starting next year.
