Russia’s central bank on Friday cut its key interest rate to 15 per cent from 15.5 per cent as the economy slows under pressure from Moscow’s protracted and expensive war in Ukraine and Western sanctions.
Huge spending on its forces in Ukraine had initially spurred growth and helped Moscow buck predictions of economic collapse after it launched its offensive in 2022.
But last year, Russia’s economy expanded by just one percent — a steep drop from growth of around four per cent recorded in 2023 and 2024.
“High-frequency data and business surveys indicate slower growth in economic activity in early 2026. Consumer demand cooled after its sharp rise in late 2025,” the state lender said in a statement announcing the rate cut.
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Inflation was running at 5.9 percent on an annual basis, it added — above its target of four per cent.
Massive military spending had pushed up inflation, triggering the central bank to raise borrowing costs to more than 20 per cent at their peak.
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That hit businesses, with some smaller firms forced to close and several large companies announcing layoffs or seeking state aid.
The war has also thinned Russia’s government finances, having posted a deficit in every year since it ordered troops into Ukraine.
But Russia’s economic fortunes have been buoyed by surging oil prices triggered by the war in the Middle East.
Benchmark Brent crude has been trading above $100 a barrel — 40 percent higher than before the US and Israel launched strikes on Iran at the end of February.
For Russia, every extra $10 per barrel gives the government a $1.6 billion monthly windfall in tax revenues, Sergey Vakulenko from Carnegie Endowment estimated.
Oil and gas revenues provide roughly a fifth of Russia’s state income and had been running at a five-year low, dragged down by sanctions, production issues and Ukrainian attacks on energy facilities, before the outbreak of the war in the Middle East.
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