Russian central bank cuts key interest rate despite rising inflation

MOSCOW

Russia's central bank delivered a modest interest rate cut on July 24, despite a spike in inflation driven by spiralling fuel prices triggered by mass Ukrainian strikes on refineries.

The bank cut its key rate to 14 percent from 14.25 percent, it said in a press release, also slashing its annual gross domestic product forecast as pressure mounts on Russia's war economy.

"Current price growth sped up in June-July. Price dynamics in recent months were considerably affected by volatile components, including motor fuel, fruit and vegetables," it said.

In recent months, Ukraine has rained down swarms of drones on Russia's oil refining infrastructure and logistics, sparking a full-blown petrol crisis in one of the world's biggest oil producers.

As Russians queued at petrol stations, surging fuel prices pushed inflation up by a percentage point to six percent in June, above the bank's four percent target.

Due to a "considerable" spike in fuel prices, the bank sees annual inflation remaining elevated at six to seven percent in 2026.

After the economy contracted in the first quarter for the first time in three years, second-quarter growth was "moderate", the central bank said.

It trimmed its annual GDP forecast to 0-1 percent, from an earlier forecast of 0.4-1.3 percent.

In the war's fifth year, non-military sectors of the Russian economy have come under increasing strain, struggling under high borrowing costs, labour shortages and inflation.