THE Russian central bank reduced its key rate by 50 basis points to 14.5 per cent yesterday, as expected by analysts, despite pressure from businesses to cut faster to boost the economy, which contracted by 1.8pc in the first two months of the year.
The central bank governor Elvira Nabiullina urged caution on the impact of the Iran war and a blockade of the Strait of Hormuz, which has sent prices for Russia’s export commodities soaring even as Russia has had to cut oil output due to Ukrainian drone attacks on ports and refineries.
“If the conflict drags on, the adverse effects for the Russian economy will be strengthening. The implications caused by a global rise in costs might turn out to be more serious than the benefits from larger exports and a stronger rouble,” she said.
“The situation in the Middle East remains a factor of uncertainty,” she said.
However, the central bank raised its forecast for the average oil price, used for the calculation of budget revenues, in 2026 by 45pc to $65 per barrel, and said that the higher price will boost economic growth later this year.
In its statement, the central bank blamed one-off factors such as a value-added tax increase at the start of the year, which hit many small and medium-sized businesses, as well as heavy snowfalls across the country, for the contraction.
“The abnormal frosts and snowfalls at the beginning of this year led to forced downtime in the first quarter, and therefore, construction companies will make efforts to catch up in the next quarter,” she said.
The central bank added that since the contraction was largely driven by one-off factors, it decided to leave its forecast for economic growth in 2026 unchanged at between 0.5pc and 1.5pc.
Nabiullina’s first deputy, Alexei Zabotkin, said first quarter GDP data, which will be released in May, will be different “for the better” from the data in January and February.
Nabiullina said that she saw no risks of the economy overcooling. She stressed that the central bank will cut faster only if inflation falls below the target level of 4pc from the current 5.9pc and unemployment starts rising.
“It took humanity 50 years to return to the Moon. We will also return to 4pc inflation, I am sure of it, and I am confident that it will happen much faster,” she said.
President Vladimir Putin scolded his top officials last week for the economic contraction, urging them to devise new measures to boost growth. Russian businesses see 12pc as the key rate level at which economic growth can resume.
&uuid=(email))