Russia’s Central Bank slashed its key interest rate by 2 percentage points on Friday, a notable shift after months of high rates that helped tame inflation but also made borrowing painfully expensive for businesses and consumers alike.

The regulator’s action lowered its key rate to 18%, down from 20% in June. The rate had previously been held at 21%, a two-decade high introduced in October 2024 to curb soaring prices driven by wartime spending and a weakening ruble.

In a statement on Friday, the Central Bank said inflationary pressures had eased notably in recent months. Seasonally adjusted annualized inflation fell to 4.8% in the second quarter, compared to 8.2% in the first. Core inflation dropped to 4.5%, down from 8.8% in the previous quarter, it added.

“The impact of tight monetary conditions on demand is becoming increasingly evident in decreasing inflationary pressures,” policymakers said. “The effects of tight monetary policy, including through ruble appreciation, are more prominently seen in the low growth in prices for non-food products.”

However, the Central Bank cautioned that inflation expectations remain elevated, signaling that further easing would be cautious and gradual. It forecast inflation would fall to 6-7% by the end of 2025 and return to its 4% target in 2026.

Policymakers also projected the key rate would average between 18.8–19.6% this year, before declining to 12-13% in 2026. That estimate is still considered restrictive, but a notable revision from previous forecasts.