VTB revises Russia's interest rate outlook after Central Bank's surprise cut

VTB has adjusted its interest rate forecasts following the Bank of Russia’s recent decision to cut its key rate by 0.25 percentage points. Dmitry Pyanov, VTB’s First Deputy President, called the move a 'significant step taken against consensus'. The revision also reflects the Finance Ministry’s rejection of a balanced budget assumption. Initially, VTB expected four 0.5 percentage point rate cuts at the Bank of Russia’s 2026 meetings. Now, it predicts three cuts of 0.25 percentage points each, with one meeting ending in a pause. By the end of the year, the key rate is forecast to settle at 13.5%.

The bank’s updated outlook includes a sharp upward revision for 2027. VTB now projects an average key rate of 10–12% for that year, warning of a 'cold shower' for markets at the next baseline meeting. According to its calculations, every 1% of GDP in primary budget deficit could push the Central Bank’s average rate forecast up by 1–1.5 percentage points.

Pyanov noted that financial markets respond most strongly to the Central Bank’s medium-term guidance. This shift in VTB’s projections follows the Finance Ministry’s stance, which undermined the assumption of a balanced budget. VTB’s revised forecast reflects a more cautious approach to rate cuts in 2026. The bank now anticipates smaller reductions and a higher average rate in 2027. The adjustments stem from both the Bank of Russia’s recent decision and fiscal policy uncertainties.