MOSCOW, January 23. /TASS/. A sharp reduction in the key rate could significantly fuel inflation, Bank of Russia Deputy Governor Alexey Zabotkin said on the regulator’s official Telegram channel.

"When the Bank of Russia raises the key rate, demand in the economy declines, and with it the pace of price growth slows. That is why a high rate helps curb inflation rather than accelerate it. Conversely, when the rate is low, money becomes cheaper, more people take out loans and spend, demand grows faster than the economy’s capacity to expand production, and prices begin to rise. If the Bank of Russia were to sharply cut the rate now in an attempt to improve access to credit, it would drive inflation even higher," he noted.

According to him, high inflation is far worse for business over the long term than a high interest rate. "With rapid and unpredictable price growth, companies cannot plan, do not understand their future revenues and costs, suppliers constantly change prices and contract terms. Investors and lenders demand a higher risk premium under such conditions. This creates a vicious circle: an attempt to help business with cheap money leads to inflation, which ultimately hits business itself," he said.

Zabotkin emphasized that the regulator’s current task is to bring inflation back to the 4% target and keep it there in a stable manner. Only under conditions of predictably low inflation can businesses plan investments, and interest rates remain at moderate levels.

Zabotkin also noted that it is too early to talk about returning to a neutral monetary policy. "Inflation remains above the target, not to mention inflation expectations, which have not declined significantly. Therefore, it is too early to say that it is already time to return to a neutral monetary policy," he noted.

At the same time, he added that the key interest rate has been cut from 21% to 16%, and the Central Bank’s forecast envisages further reductions over the course of 2026. He also emphasized that the Bank of Russia estimates the long-term nominal neutral rate in the range of 7.5-8.5%.