Sergey Drobyshevsky, Principal Researcher at the Gaidar Institute commented for RBC on the outlook for the key interest rate through the end of 2026 and the impact of fiscal policy on the regulator’s decisions. Sergey Drobyshevsky predicts that the Central Bank of Russia may raise the rate from 14% to 14.25% at its October 23 meeting, and then return it to the previous level in December, provided that inflation slows down.
A factor explaining an increase is the acceleration of price growth in October, following the indexation of regulated tariffs. Although this spike may prove to be a one-off event, it could influence the inflation expectations of both households and businesses. At the same time, economic activity remains unstable, so a sharp tightening of monetary policy may hinder investment.
“If, following a spike at the beginning of the month, the growth of the CPI returns to a level of 0.3–0.4% per month by the end of October, the Central Bank could bring the interest rate back to 14% at its December meeting. A more considerable rate cut is, in our view, unlikely, as January typically sees a seasonal acceleration in inflation and the Central Bank must take this factor into account,” Sergey Drobyshevsky noted.
Sergey Drobyshevsky also assessed the impact of the federal budget on monetary policy. In his view, a projected deficit of around 2% of GDP for the 2027–2029 period does not fundamentally alter macroeconomic conditions. However, should the actual budget deficit exceed 2.5–3% of GDP, the Central Bank of Russia would have to take more account of the Ministry of Finance’s borrowing needs.
In the regulator’s forecast, Sergey Drobyshevsky expects the inflation estimate for 2026 to be raised to 6.8–7.5%, with a slight widening of the range for the average key interest rate to 14.5–14.7%. At the same time, Sergey Drobyshevsky expects that both inflation and the key rate will continue to decline in 2027. However, should inflation expectations intensify in November and December, the Central Bank of Russia may opt for a further hike in the key rate.