Not a step back: the Central Bank will not lower the key rate until the end of 2026

On October 23, the Central Bank kept the key rate at 14% for the second time. At the same time, it is highly likely that the regulator will no longer reduce it by the end of the year, experts interviewed by Izvestia believe. The reason is the acceleration of inflation, high expectations of price increases and risks associated with budget expenditures. The Central Bank has significantly worsened its medium–term forecast: now it expects inflation at the end of 2026 at the level of 7.1-7.6%, and the average key rate in 2027 is 12.5–13.5%. Why the period of expensive money is dragging on and how it will affect the conditions of lending and savings — in the material of Izvestia.

What decision on the key rate was made by the Central Bank on October 23

The Board of Directors of the Bank of Russia has decided to keep the key rate at 14% per annum, the regulator's press service said. This is the second pause in a row. The main reason is that the price pressure in the economy remains elevated, and the population's inflation expectations are still high.

At the October 23 meeting, as last time, opinions were voiced about the need to raise the key rate, Central Bank Governor Elvira Nabiullina said during a press conference. However, the board of directors discussed only its retention at the level of 14%. At the same time, there is less room for a rate cut until the end of 2026.

In the third quarter, seasonally adjusted consumer price growth accelerated to 8% year-on-year against 4.8% in the second quarter, the Central Bank stressed. At the same time, core inflation, which better reflects stable price dynamics, increased from 4.5% to 6.2%. After the previous slowdown, price pressure has increased again.

— Inflation in the stable part remains at an elevated level, while inflation expectations in the economy are near the highs of recent years. Unfortunately, this situation may last longer than we estimated in July," Elvira Nabiullina said.

The rise in prices continues to be influenced by the rise in prices of certain goods, primarily motor fuel, the Bank of Russia explained. An additional problem is inflation expectations. In September, Russians expected prices to rise by 14.2% over the next 12 months, while in August they expected an increase of 13.7%. When people and companies predict further price increases, they are more likely to make purchases in advance, which supports demand and makes it difficult to combat inflation.

The outflow of production capacity also had a significant impact on the acceleration of inflation, Elvira Nabiullina noted. According to her, the Central Bank takes into account all factors, including the consequences of attacks on data centers. The recovery will be gradual during 2027, so the impact of this factor on prices may be longer.

Exceeding the planned budget deficit also remains one of the risks of rising inflation, which the Central Bank takes into account in its forecasts, said Elvira Nabiullina, Chairman of the Bank of Russia, in response to a question from Izvestia. If the price increase in 2027 turns out to be higher than the forecast of 4%, which is already included in the draft budget, the government will have to increase spending on indexation, public debt servicing and public investments. It is important for the regulator to achieve a reduction in inflation, including to prevent an additional increase in budget expenditures.

Against this background, the Bank of Russia has significantly worsened its forecast for the coming years. The regulator now expects consumer prices to rise by 7.1-7.6% by the end of 2026. At the same time, the inflation target for the end of 2027 remains the same - 4%. However, the average price increase for the next year is projected at 5.2–5.7%. This means that higher inflation will persist longer than previously expected.

The Bank of Russia has significantly revised its forecast for the key interest rate. In 2027, its average level is now expected to be in the range of 12.5–13.5% instead of the previous 10.5–12.5% — the upper limit of the previous corridor has become the lower for the current one. And for 2028, the estimate was increased from 8-9% to 9-10%. Thus, the Central Bank assumes that double-digit rates will remain for most of next year, and a return to cheaper loans will not be quick.

For 2026, the regulator has set the average key rate at 14.6%. There is only one meeting left until the end of the year, on December 18. This means that the forecast leaves room for only a small reduction in the rate, for example, to 13.75%, but experts interviewed by Izvestia consider it more likely that the current level will remain.

Why is a pause until the end of 2026 very likely?

Anton Tabakh, chief economist at Expert RA rating agency, is confident that the Central Bank will no longer lower its key rate this year. The regulator needs to make sure that the acceleration of inflation does not become sustainable, and further policy easing will not lead to a new price increase.

Sergey Klisenko, Managing Director of the NRA rating service, also considers it most likely that the rate will remain at 14% until the end of the year. According to him, in order to resume the decline, the regulator needs to see a more stable slowdown in inflation, while the risks of its acceleration remain.

Fiscal policy also plays a significant role. According to the updated plan of the Ministry of Finance, the treasury deficit will reach 7.3 trillion in 2026, Sergey Klisenko recalled. Moreover, a significant part of the additional costs will be incurred by the end of the year. According to him, this will create additional inflationary pressure precisely at a time when the regulator is deciding on a further rate cut.

Government spending supports demand for goods, services, and labor. If production does not have time to increase at the same pace, companies get the opportunity to raise prices. This effect is especially noticeable with extremely low unemployment, when it is difficult for enterprises to quickly find additional employees and expand production.

The situation is also affected by the increase in public debt, according to the NRA. To cover the deficit, the government attracts borrowed funds, including through the placement of bonds. This money allows you to finance budget expenditures even with a lack of income. However, if additional demand exceeds the capacity of the economy, it can increase inflation, which the Central Bank is trying to contain with high interest rates.

Over the next three years, the Finance Ministry expects to reduce the deficit to about 2% of GDP. However, the impact of changes in fiscal policy on inflation is not immediately apparent, Anton Tabakh emphasized. According to his estimates, it takes about six months to do this. Therefore, even more restrained spending in the future will not necessarily allow the Bank of Russia to lower the rate at the next meeting.

The government has planned a structural deficit of 0.6% of GDP for 2027, which is in line with the Central Bank's expectations, Sergei Klisenko said. At the same time, there remains a risk of another revision of budget parameters. According to him, the expenditure next year is only 200 billion rubles higher than the plan for 2026, and such assumptions already look quite optimistic.

The Ministry of Economic Development predicts a reduction in the treasury deficit to zero only by 2029. At the same time, high costs associated with geopolitical factors and social obligations may be combined with limited oil and gas revenues and income tax revenues, Natalia Milchakova, a leading analyst at Freedom Global, warned.

At the same time, the Central Bank expects that the current parameters of fiscal policy in the medium term will contribute to reducing inflation. However, the regulator warned that if they change, monetary policy adjustments may be required. Therefore, the risk of new expenses remains one of the arguments against a rapid rate cut.

How will this affect interest rates on loans and deposits

After the Central Bank's pause in September, rates on banking products continued to rise. The maximum interest rates on deposits for up to a year increased by 0.1–0.3 percentage points to 13.2-13.8%, and on consumer loans — by 0.9 percentage points, to 34.4% per annum. Market mortgages have barely risen in price: according to Dom.Russian Federation", the rates remained at the level of 18.7–18.8%.

Further dynamics will depend on the signals of the Central Bank, said Sergey Klisenko, managing director of the NRA rating service. If the regulator's rhetoric turns out to be tougher than expected, bond yields may rise, and rates on banking products may increase by another 0.1–0.5 percentage points.

Loans are not likely to become cheaper by the end of the year, Natalia Milchakova believes. Deposit rates are also unlikely to decrease, and before the New Year, individual banks may offer increased interest rates to attract customers. At the same time, mortgages and consumer loans will remain expensive and inaccessible to borrowers.