Russia cuts key interest rate as inflation pressure rises

Russia's central bank cut its key interest rate to 14% from 14.25%, even as it said price growth had accelerated in June and July. The bank said recent price movements were strongly affected by volatile items, including motor fuel, fruit and vegetables.

Fuel costs have risen after Ukrainian drone strikes against Russian oil refining infrastructure and logistics, leading to a petrol crisis and queues at petrol stations in Russia, one of the world's biggest oil producers. The rise in fuel prices pushed inflation up by one percentage point to 6% in June, above the bank's 4% target. Because of what the bank described as a considerable rise in fuel prices, it expects annual inflation to remain at 6% to 7% in 2026.

The bank also lowered its economic outlook. It said second-quarter growth was moderate after the economy contracted in the first quarter for the first time in three years. It cut its annual GDP forecast to between 0% and 1%, down from an earlier forecast range of 0.4% to 1.3%.

The report said non-military parts of Russia's economy are under growing pressure in the fifth year of the war, with high borrowing costs, labour shortages and inflation weighing on activity.