Russia's central bank has cut its key interest rate to 20% — from a two-decade high of 21% — due to a slowing economy and rapidly rising prices.

Russia's economy has been marked by instability since the country launched a large-scale military offensive against Ukraine in 2022, with growth now slowing after a period that authorities described as “overheating.”

The Kremlin has significantly increased military spending to support the campaign, directing funds to arms production and the army — spending that helped ensure strong growth despite a series of Western sanctions.

“The Russian economy is gradually returning to balanced growth,” the bank said in a statement acknowledging the slowdown.

Inflation is still above 10%, although ‘pressure’ on prices “continues to ease.”

This year, the bank has been under growing political pressure to cut interest rates, which businesses say are stifling the economy and killing investment.

The decision is the first interest rate cut since September 2022.

The bank warned that despite the one percentage point cut, “monetary policy will remain tight for a long period.”

Russia's official target is 4% inflation, but it is not expected to return to that level until next year. | BGNES