Russia cuts sky-high interest rates for the first time since 2022

The recent decision by Russia’s central bank to cut interest rates for the first time since September 2022 marks a significant shift in the country’s economic landscape. The move, which saw rates drop by 100 basis points to 20%, is a clear indication that inflation pressures, previously described as “alarming” by President Vladimir Putin, are beginning to ease.

According to the central bank, the seasonally-adjusted inflation rate in April was 6.2%, down from an average of 8.2% in the first quarter of 2025. This downward trend in inflation is a positive sign for the Russian economy, which is slowly returning to a balanced growth path. However, the central bank emphasized that monetary policy will remain tight for an extended period to bring inflation back to its target of 4%.

The Russian economy has been under immense strain due to the full-scale invasion of Ukraine in February 2022. The conflict has led to a weaker ruble, pushing up import prices and forcing the country to re-orient its economy amidst years of war. While GDP growth rebounded strongly after a period of contraction, it slowed to 1.4% in the first quarter of 2025. Economists note that growth has been concentrated in manufacturing, particularly in defense and related industries, supported by state spending.

Despite hopes for a ceasefire or peace deal between Russia and Ukraine earlier this year, direct attacks continue between the two countries. However, the Russian ruble has emerged as the best-performing currency this year, attributed to capital controls, policy tightening, and a decline in the U.S. dollar. Following the rate cut announcement, the U.S. dollar strengthened by 2.72% against the ruble.

Nicholas Farr, an economist at Capital Economics, described the rate cut as a dovish surprise to the market and predicted that rates could end the year at 17%. However, he cautioned that demand-supply imbalances resulting from the war may necessitate keeping interest rates in restrictive territory.

The interactive chart below illustrates the performance of the U.S. dollar against the Russian ruble:

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In conclusion, the recent rate cut by Russia’s central bank reflects a cautious optimism about the country’s economic prospects. While challenges persist due to the ongoing conflict in Ukraine, the gradual easing of inflation and the resilience of the ruble are positive signs for the future. The road ahead may still be uncertain, but the willingness to adapt and adjust monetary policy bodes well for Russia’s economic stability.

— CNBC’s Lee Ying Shan and Holly Ellyatt contributed.