Has Russia’s prime interest rate peaked? The Central Bank of Russia (CBR) says analysts have lowered their forecast for interested rates in 2025 to 20.5% in its latest monthly macroeconomic survey of professional economists. (chart)

The projection for 2025 has been lowered to 20.5% per annum, a decrease of 0.8 percentage points from earlier estimates. Conversely, the forecast for 2026 has been slightly increased to 15% per annum, up by 0.4 percentage points, the CBR reports. The 2027 forecast remains unchanged at 10.4% per annum, notably higher than the median neutral key rate estimate of 8%.

Inflationary pressures are still high, and several commentators have been predicting that the prime interest rate may be raised by 200-300bp in the first half of this year. Indeed, the market was widely anticipating a 200bp hike at the last monetary policy meeting in December, when CBR Governor Elvia Nabiullina surprised with an unusually dovish decision to keep rates on hold at 21%. That decision led to speculation that the famously autonomous governor had succumbed to pressure from the government and leading businesses to not hike rates again that are already at crushingly high levels.

Despite the historically high interest rates, inflation has remained persistently high and accelerated in December to end the year “out of control” at 9.5%, and crept up again in the first week of this year to 9.92%, according to the Economic Development Ministry. 

“The rise in Russian inflation to 9.5% year on year in December is likely to be followed by an increase to more than 10% early this year. The central bank has set a high bar for further tightening but we think the balance remains tilted towards another interest rate hike this quarter,” said Liam Peach, the senior emerging market economist with Capital Economics, in recent note.

All components increased in December, with food inflation surging from 9.9% y/y in November to 11.1%, services rising from 11.4% y/y to 11.5% and non-food goods up from 5.7% y/y to 6.1%.

Inflation expectations in January also reached its highest level since December 2023 at 14%, according to a survey by inFOM for the Bank of Russia. At the same time, among those who have savings, inflation expectations fell from 12.7% to 12.6%. Among those without savings, expectations climbed from 14.9% to 15.4%. When business and the public expect high inflation, it becomes harder for the Central Bank to ease its monetary policy.

The extremely high interest rates are starting to have an impact on the economy with some economists predicting a wave of bankruptcies starting in the middle of this year, although other observers argue that the economy is more robust than it first appears.

Last autumn the CBR, together with the Ministry of Finance (MinFin), launched a series of non-monetary policy methods to bring down inflation, some of which appear to be working.

The central bank said one of the reasons it kept rates on hold in December was the recent softening in credit growth that was a major cause of inflation in 2024. Booming corporate lending in particular was down by almost a third (31%) in December and this January consumer loan volume fell for the first time in years after retail creditors paid off more loans than they took out, partly thanks to tougher macroprudential restrictions on consumer borrowing imposed by the CBR last year.

But the economy also began January much stronger than anticipated, with both the services and manufacturing PMIs surprising with a surge by the most in over year to post a combined 54.7 points, well ahead of the 50 no-change benchmark. Russian President Vladimir Putin has called for more production of goods and services that will help bring inflation down by improving things on the supply side.

But the CBR forecast also revised its inflation expectations upwards. For 2025, the forecast has risen to 6.8%, an increase of 0.8 percentage points compared to the December survey. The 2026 inflation forecast has seen a marginal uptick to 4.6%, up by 0.1 percentage points. Analysts anticipate a return to the target inflation rate of 4% only in 2027.

Additionally the survey found GDP growth projections modestly adjusted. The forecasts for 2025 and 2027 have been slightly elevated, while the 2026 estimate remains steady at 1.6%. The updated figures are 1.6% for 2025, 1.7% for 2026 and 2.0% for 2027. The median long-term growth rate has been marginally raised to a better than expected 1.9%. According to analysts, GDP growth in 2027 compared to 2021 is expected to reach 11.9%, up from the previous estimate of 11.7%.

The consolidated budget deficit for 2025 is now projected to be 1.2% of GDP, a slight uptick from the December forecast of 1.1%. Projections for 2026 and 2027 remain unchanged at 1% of GDP.

Trade forecasts have been notably revised. The export of goods and services is now anticipated to be $458bn in 2025, a reduction of $17bn from prior estimates. For 2026 and 2027, exports are projected at $463bn and $472bn respectively, marking a cumulative decrease of $44bn compared to earlier forecasts. These figures represent a 14% decline, or $78bn, from 2021 export levels.

Import forecasts have also been adjusted downward, though less significantly. Imports are expected to reach $380bn in 2025, a $2bn decrease; $390bn in 2026, down by $5bn; and $399bn in 2027, a $2bn reduction. Despite these adjustments, imports are projected to be 6%, or $22bn, higher than in 2021.

The ruble's exchange rate forecast has been revised upward throughout the forecast period. Analysts now expect an average rate of RUB104.7 per dollar in 2025, RUB108.8 in 2026 and RUB110.4 in 2027. These adjustments indicate a 2.6% to 4.6% depreciation of the ruble compared to the December survey.

Oil price expectations remain stable, with Brent crude projected to average $75 per barrel in 2025 and 2026. A slight decline to $72 per barrel is anticipated in 2027.