Russian central bank keeps key rate on hold at 14%, raises 2026 inflation forecast

The Russian central bank kept its key rate on hold at 14% for the second time in less than two months as Ukrainian drone ‌attacks on refineries, government spending, and utility fees kept inflation high in the near-stagnant economy. The central bank raised its forecast for inflation to between 7.1% and 7.6% in 2026 from 6%-7% previously and indicated it expects rates to remain near current levels in the coming year. The bank targets inflation of 4%, a level it still expects to reach in 2027.

The decision was ‌in line with a forecast of all 20 analysts polled by Reuters this week. The latest data showed that the consumer price index was up 6.2% since the ‌start of the year, compared with a 4.8% rise in the same period last year. "Current price pressures remain elevated. Inflation expectations stay high," the central bank said in a statement.

Prices for petrol have spiked by 21% and for diesel by 13.4% since the start of 2026 after drone attacks, described by the central bank as "one-off factors," put many refineries out of action and triggered queues at fuel stations across the country. "Underlying price growth has ⁠not yet ​decreased and remains in the range of 5–6% ⁠in annualised terms, primarily due to the impact of a temporary reduction in production capacities in certain sectors," the central bank said in reference to the attacks.

It added that fuel prices were affecting the overall price dynamics ⁠while proinflationary risks were linked to "a longer contraction of production capacities in certain sectors." "We see a decline in both the stock index and the state bond market. It's not surprising, as the outlook ​for the future has been revised quite harshly," said analyst Sofya Donets from T-Investment.

ANOTHER YEAR WITH KEY RATE ABOVE 12% Utility fee hikes, decided by regional authorities based ⁠on guidance from the central government, saw bills rise by an average of 13.4% from October 1, exceeding the guidance figure by 3.5 percentage points.

The state budget deficit is set to reach 3.2% of gross domestic product (GDP) in 2026, ⁠double ​the previous target of 1.6% of GDP, with spending set to rise by 13% this year, mostly driven by increased military expenses. High interest rates are holding back Russian economic growth - expected to be 0.6% this year - and are pushing up debt servicing costs for the government at a time when it needs to borrow more to cover ⁠the budget deficit.

The central bank raised its forecast for the average key rate in 2027, an important gauge of its future monetary policy, to between 12.5% and 13.5% from ⁠between 10.5% and 12.5% previously. This implies that the ⁠Russian economy will have another year with the key rate above 12%. Businesses see rates at or below this level as necessary for investment to resume.

There is only one more rate-setting meeting scheduled for this year on December 18 and analysts noted the updated ‌forecast for the average key ‌rate left room for a 25-basis-point cut then. (Additional reporting by Darya Korsunskaya; Writing by Gleb Bryanski; ​Editing by Andrew Osborn and Toby Chopra)