Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 25 July 2025
Good afternoon. Today, we have made the decision to cut the key rate to 18% per annum.
Inflation, including its underlying component, is decelerating. The growth of consumer demand is slowing down gradually, and the expansion of lending is moderate. All these factors allow us to further cut the key rate.
It is tight monetary policy that has become a fundamental factor behind disinflation and the return of the economy to a more balanced growth path. We should therefore be prudent in making our further key rate decisions. Monetary policy should remain tight during a long enough period to ensure a sustained return of inflation to low levels.
I would now dwell on the reasons behind our today’s decision.
Firstly, the deceleration of inflation has become more pronounced.
Since the previous meeting, we have obtained a comprehensive view of the situation in May and June and can state that the current price growth rates over these two months approached 4% in annualised terms. Most measures of underlying inflation decreased to
The variance of price growth rates across the main goods and services groups as well as across Russian regions has somewhat decreased. However, it is still notably larger as compared to the period when inflation was low. Over the previous months, we were concerned about quickly rising prices for services because price movements in this segment are a good indicator of domestic demand dynamics. We can now see that price growth has started to decelerate in those market services where prices are less affected by one-off factors. These are, for instance, healthcare and personal services. Nevertheless, price pressures remain elevated in these segments and most notably in public catering. This is associated with, among other things, structural factors, such as changes in consumer preferences towards services, out-of-home food, and domestic tourism.
As for non-food goods, the lowest price growth rates were recorded in the segments of electronic devices, household appliances, and cars. Prices for certain items, e.g. computers, tablets, and home appliances, have even been declining for several consecutive months. Durables are the segment where the transmission of high interest rates to prices is the strongest and quickest. Interest rates impact prices through both a reduction in consumer lending and a stronger ruble.
In May and June, a slower rise in prices for certain volatile components of the consumer basket, such as fruit and vegetables as well as tourism services, also contributed to disinflation.
In July, vegetables have continued to cheapen faster than usually during this season, which is evidenced by the latest weekly statistics on price growth. However, monthly price growth rates in July will be higher overall than over the previous months, primarily because of the indexation of utility tariffs. Higher tariffs not only contribute to inflation directly, but may also involve the so-called second-round effects. Here is what I mean saying this. A significant rise in prices for socially important goods or services can affect households’ inflation expectations. This in turn will be influencing their decisions on consumption and savings and, accordingly, the overall price growth.
It is crucial to take into account this risk because inflation expectations remain elevated. They have stayed nearly unchanged among households over the past few months and have even edged up among businesses in July, for the first time over a long period.
I would like to stress that, although the current price growth rates have already approached 4%, the downward trend should still consolidate.
Secondly, the economy.
The expansion of demand is decelerating gradually and is becoming increasingly consistent with the economy’s capacities to ramp up output. This is a key factor of disinflation. Manufacturers are decreasing their expectations regarding the rise in demand, especially in the consumer segment.
Investment activity remains high, including owing to government support in priority sectors. We expect that investment will expand this year, although its growth rate will be lower than over the previous two years.
Labour market tightness has somewhat decreased recently. The number of companies reporting staff shortages has declined. Enterprises plan a more moderate indexation of wages this year. However, the current growth rate of wages in the economy as a whole is still higher than that of labour productivity, according to our assessments. Unemployment stays at a record low.
Staff shortages remain a risk factor for inflation. If the expansion of domestic demand accelerates again without a commensurate increase in productivity, it will soon clash with a deficit of labour resources and will largely translate into price growth.
Thirdly, monetary conditions remain tight but have slightly eased compared to June.
Nominal interest rates have decreased in most segments of the financial market. This has resulted from the reduction in the key rate and market expectations regarding its future path. Real interest rates have declined less notably, taking into account the slowdown in the current price growth. The tightness of non-price lending conditions has generally remained unchanged.
Credit is expanding more slowly than over the previous two years. The trends stay uneven across the segments. The consumer loan portfolio has continued to contract, whereas mortgages and corporate lending have been increasing moderately. According to our assessments, credit activity is affected by more modest demand for borrowing rather than by credit supply constraints associated with banks’ capital adequacy or macroprudential requirements.
The annual growth of lending to organisations and households has continued to decelerate, generally in line with our expectations, just like the expansion of money supply.
The growth rates of household deposits have edged down since the beginning of the year. Such a decrease is natural as the expansion of money supply, lending, and incomes decelerates. Nevertheless, deposit rates remain attractive and the demand for time deposits is still high. I would like to remind you that, when we identify whether households prefer to consume or to save, we factor in not only deposits but also loans and compare them against income dynamics. We assess how much of their incomes households use to consume, save or repay debts, as well as whether they raise more loans for new purchases or not. Combined, the trends in these indicators now show that households still prefer to save and people’s propensity to save remains at record-high levels.
As monetary policy tightness decreases, the savings rate will be declining, but this will be a gradual process. This means that households’ savings will continue to grow albeit more slowly. This is in line with the objective to maintain low inflation.
Briefly about external conditions.
As compared to April, we have revised downwards our forecast of Russian crude prices to $55 per barrel for 2025 and 2026. Trade tensions between the largest economies will be weighing on external demand, while an expansion of OPEC+ oil production will increase the supply of oil. In these conditions, we have also slightly decreased the forecasts of exports and the current account surplus for the next two years.
The ruble exchange rate is affected by flows not only in the current account but also in the financial account of the balance of payments. Owing to high interest rates, ruble assets remain more attractive to Russian households and companies as compared with foreign assets. Coupled with more moderate demand for imports, this ensures the stability of the ruble exchange rate despite a slight decline in exports.
I will now speak of risks to our baseline forecast.
I have already mentioned the key ones, which are risks associated with inflation expectations and the labour market. In this regard, we are still far from a situation where we could say that the danger of price growth acceleration has passed. Risks of a deterioration in the terms of external trade, primarily associated with a decline in global oil prices, as well as geopolitical risks persist.
Overall, proinflationary risks still prevail. Nevertheless, making our decisions, we take into account disinflationary risks as well. The main one of them is a faster cooling in credit and demand than expected in our baseline forecast.
Fiscal policy remains an important factor for our forecast. We assume that the Government will stick to the fiscal rule in 2025 and further on. If the fiscal parameters change, we might need to adjust the projected key rate path.
Winding up, I would like to comment on our future decisions.
We are on the way back to the inflation target, but this journey is not over yet. We can already see the first results which have allowed us to cut the key rate again today, gradually adjusting the monetary policy tightness to the easing of inflationary pressures. Furthermore, we have revised downwards our forecast of the average key rate to
However, the return to the target does not mean just a few months of the current price growth rate being close to 4%. The return to the target implies stabilising inflation at a sustainably low level, including both the actual inflation rate and inflation perceived by households and businesses, which is what we call inflation expectations. To achieve this result, we need to be patient and prudent in our decisions, especially when disinflationary trends have emerged just recently, preceded by a long period of elevated inflation.
Monetary policy has ensured the reverse of the trend and inflation has started to decelerate. Therefore, monetary policy should remain tight for as long as needed to sustainably bring inflation back to 4% in 2026 and stabilise it close to this level.
Thank you for your attention.
Q&A FOR THE MEDIA
QUESTION from Interfax:
Is there still headroom for further steps of a similar magnitude as a 200 bp key rate cut? Or, do you prefer to make steps not exceeding 100 bp?
In addition, as regards the easing of monetary policy and keeping the GDP growth forecast for 2025 unchanged, am I correct in understanding that you do not see any risks associated with tight monetary conditions in the economy? In the same vein, are there any risks of a deteriorating quality of banks’ portfolios, and are you discussing any options to support certain banks, including large ones, or, maybe, any financial rehabilitation measures for major players?
Elvira NABIULLINA:
Regarding our steps and monetary policy decisions, the Bank of Russia’s key rate forecast assumes that it might cut the key rate by 100 bp, 150 bp, and 200 bp, as well as make pauses between these cuts at some of the meetings by the end of 2025. Everything will depend on the information we receive.
A smooth downward path is possible if we see a more stable trend of inflation stabilisation and low inflation expectations, and provided that no new inflation shocks occur. Currently, we assume that different steps might be taken.
Now, as for the risks of a deterioration in the banking sector and a possible recapitalisation of banks. We do not deem it necessary to recapitalise large banks due to some potential overhang of non-performing loans. The banking sector is profitable. I would like to remind you that its profit over 2025 H1 amounted to ₽1.7 trillion. These are large figures. This allows banks to maintain the required capital adequacy and build up their capital. The real situation with non-performing loans is better than it is sometimes painted.
Specifically, the cost of credit risk (i.e. the average loan loss provision ratio) in 2025 H1 was far from its all-time highs, standing at 0.9% in annualised terms. This is a historically normal level of the cost of risk for Russian banks. For comparison, I would like to remind you that it exceeded 3% in 2022 H1, meaning this is normal.
In retail, the provision ratio is predictably higher – at approximately 3.4%, while the historical norm is around 2%. Nevertheless, this is not critical as 90% of non-performing unsecured loans are covered by provisions, which is a high percentage. In mortgage lending, the coverage is lower – 67%, but mortgage loans are secured by high-quality collateral.
Therefore, we do not see any risks for banks here. The capital is indeed distributed unevenly across the banking sector, but this will rather affect lending growth rates ensured by different banks.
QUESTION from TASS:
As usual, we would like to know which options were considered today and whether the revision of the neutral rate range was discussed.
Elvira NABIULLINA:
The options discussed at the meeting today were related to key rate reductions. The option of keeping the key rate unchanged was not considered. We discussed a 100 bp, 150 bp, and 200 bp key rate decrease but focused mainly on the 100 bp and 200 bp options.
As for the neutral rate of interest, we considered and analysed the neutral range as part of preparing the Monetary Policy Guidelines, but today we have not found any grounds for revising the neutral rate now.
Alexey ZABOTKIN:
The Monetary Policy Guidelines will include the baseline forecast made at the July key rate meeting, which was published today. It assumes the neutral rate of interest within the range of
Indeed, having considered all the factors, which will be detailed in the Monetary Policy Guidelines, we did not have any substantial discussion about revising the neutral rate of interest.
QUESTION from RIA Novosti:
Today, you have cut the key rate for the second time in a row. Moreover, banks have already begun, and continue, to reduce interest rates on deposits and mortgages. In your opinion, is it already reasonable to use savings from deposits to take out mortgages or is it too soon? When would be the right time to do this?
Elvira NABIULLINA:
I consistently refrain from giving any universal advice as everyone’s life situation is different. People might need to take out a mortgage loan if they want to improve their housing conditions, if they, for example, have saved money to make a down payment but lack a small amount that they can afford to borrow even at high interest rates. Situations are different.
Of course, people compare and evaluate not only deposits and mortgages, but also opportunities to invest in the stock market.
We believe that deposits will remain attractive for a long time, despite the reduction in the key rate, because we are going to cut it gradually as inflation slows down. Furthermore, we will assume that deposit rates will remain higher than the inflation rate in order to protect households’ savings from depreciation due to inflation. Ultimately, though, everyone will make their own decisions.
QUESTION from Rossiyskaya Gazeta, Vladivostok:
Why is it that some Western countries have enormous public debt, yet low inflation and symbolic policy rates? Perhaps, we could follow the same path by curbing inflation through the strictest of measures, even resorting to criminal prosecution of those who inflate prices, lowering the key rate to an acceptable level, limiting banks’ insatiable appetites, and printing money to satisfy the economy’s needs?
Elvira NABIULLINA:
This is not exactly how the economy works. As a rule, high interest rates help decelerate inflation, only after that they decline. There have been attempts to circumvent this principle, but they come at a high cost. Do not put the cart before the horse, as the saying goes.
Interest rates are low in those countries where inflation is low and, which is probably even more important, people are confident that it will stay low. In other words, these are economies with anchored inflation expectations.
Let me remind you that these countries also had to maintain their policy rates at a high level when inflation was high too. For example, in the early 1980s, the US saw its Fed funds rate reach 19%, while inflation was around 15%, and they kept the rate above 10% for three years. Other countries also had similar experiences.
Nevertheless, after they had managed to defeat inflation using a high policy rate, inflation became sustainably low, and they enjoyed its benefits for a long time. Namely, in the US, the active growth of the public debt resumed right after inflation was brought to the target of 2%. Then again, low interest rates became possible only owing to a decline in inflation.
As for the administrative regulation of prices, it will bring us nothing but a deficit and a black market. I believe we have learned this lesson, including from our own experience.
The Bank of Russia is trying to achieve a sustainable result and prevent demand from outstripping the capacities to ramp up output by using the key rate to adjust demand to production capacities. This is the only way to achieve truly stable inflation. After that, interest rates in the economy will also become affordable.
QUESTION from NTV’s Delovye Novosti:
At one of the previous press conferences, you said that a high key rate is an effective remedy. The comparison was very easy to understand, so we would like to expand it. Doctors, for example, have a pain scale from 1 to 10. What if we measure inflation in Russia using the same scale? Let us say, 1 is low inflation and 10 is unbearable inflation. The Bank of Russia’s so-called inflation pain scale. In your opinion, where are we today on this scale?
Elvira NABIULLINA:
You know, central banks actually have a special inflation scale. Low inflation is the one that people do not really notice. For Russia, it is the inflation rate of close to 4%. However, many other countries set a 2% target and regard it as low inflation. For them, the inflation rate of 4% would be considered high.
Surely, there are different degrees of high inflation: from moderately high levels that we are currently leaving behind to very high levels when inflation reaches double digits. When inflation is very high, it hinders people in making plans and impedes economic growth, making the economy extremely vulnerable to external shocks.
What is even more dangerous is that high inflation can easily evolve into hyperinflation with prices growing by hundreds or thousands of percent. We saw inflation being that high in 1992 when prices increased more than
Building on the medical analogy you mentioned, we believe more time is needed to make sure that the decline in inflation that we see today is truly a recovery rather than symptom relief.
QUESTION from RBC:
In its earlier communications, the Bank of Russia noted a significant contribution of a stronger ruble to disinflation, while also pointing to the need to make sure that the ruble appreciation is sustainable. In the current situation where the ruble has been strengthening against the US dollar for seven consecutive months, can we state that this trend is stable? Or, does it still remain a highly unpredictable parameter for the Bank of Russia? Will the reversal of the trend trigger inflation acceleration and impact your further decisions?
Elvira NABIULLINA:
Back in June, we said that, according to our estimates, the ruble strengthening was for the large part the result of tight monetary policy, which is a fundamental factor.
In principle, the exchange rate can be viewed as an independent factor affecting inflation when it is a consequence of external conditions, e.g. export fluctuations.
However, this year, a stronger ruble is the result of high ruble rates and tight monetary policy. In other words, the ruble appreciation in its policy-driven part is a channel through which the key rate impacts demand and inflation, rather than some separate, additional factor that might work or disappear independently.
Certainly, if there is a drastic deterioration in external conditions of such a magnitude that it will prevent the regulator from bringing inflation back to the target of 4% in 2026 through this exchange rate channel, we will surely be ready to adjust the key rate path.
QUESTION from Rossiyskaya Gazeta:
Our question is about inflation expectations that have been stuck at the high level of 13% for several months already. Moreover, observed inflation is even higher, with many people refusing to believe that the ruble will remain strong for a long time. Is the Bank of Russia not concerned that, in these conditions, it might face another rise in inflation right in the middle of reducing the key rate?
Elvira NABIULLINA:
We will be cutting the key rate in such a way so as to avoid another surge in inflation. However, we are certainly concerned about elevated inflation expectations and we state this openly. We anticipate that inflation expectations will decline following a sustainable slowdown in inflation, similar to their gradual decrease in
If it does not happen, it will just give us less room to reduce the key rate. In any case, we will take action to prevent another rise in inflation.
Alexey ZABOTKIN:
An indication to caution regarding further key rate decisions, mentioned in the Governor’s statement, is a reference to, among other things, the fact that we will surely make decisions while keeping an eye on inflation expectations. There is no other way.
QUESTION from Khakasia newspaper, Abakan:
Countries around the world pursue different monetary policies. For example, the policy rate in Turkey is 46%, while inflation is 35%. There is also Argentina with a 29% policy rate and 40% inflation. In Russia, as we all know, the situation is the opposite. Nevertheless, the question is: does the Bank of Russia factor in the experience of these countries when developing its monetary policy? And another question: what will happen if we cut the key rate sharply, e.g. in half? What risks would it pose to the economy?
Elvira NABIULLINA:
We certainly analyse other countries’ experience, both successful one and the experience of conquering spiralling inflation. The examples you have given are in fact consistent both with our approaches and with those recognised worldwide, implying that disinflation is ensured through high interest rates, which restrain demand when inflation expectations are elevated.
However, I would like to elaborate on this. It would not be entirely right to evaluate the tightness of monetary policy just by looking at the difference between the key rate today and inflation over the past 12 months. Annual inflation shows what happened in the past, rather indicating how tight or accommodative monetary policy was over the past
It would be more correct to assess the current level of tightness based on the inflation rate expected by households and businesses or, at least, compare the seasonally adjusted annualised rate of current (monthly) price growth with the key rate.
When inflation decelerates from high levels, current price growth rates are notably lower than the annual ones. If we annualise current rates, they are much lower than they were last year that started off with high price growth rates.
Similarly, annual inflation in Russia is now more than 9%, whereas current inflation is
In Turkey and Argentina, too, current price growth rates are around 20% in annualised terms, which is considerably higher than our rates. However, this is a rather sharp deceleration from the peaks these countries experienced: from over 80% in Turkey and from nearly 300% in Argentina (inflation soared to this level in
Obviously, we analyse not only the errors made by other countries but also their positive experience. Today, we are walking the same path that was taken in the 1980s—early 1990s by all those countries that have managed to maintain sustainably low inflation for most of the last
The proposal to just cut the key rate, without paying due respect to inflation, to high price growth rates, will lead not only to soaring prices but also to another inflation spiral. Therefore, we believe we must not do it that way.
Alexey ZABOTKIN:
As regards the proposal to halve the key rate, this is exactly what was done in Turkey in 2021. The policy rate was decreased from 24% to 10%, without taking into account the fact that inflation at the time demonstrated a tendency to accelerate. How did it end? In 2023, inflation reached 85% and started declining only after the policy rate was raised to almost 50%. This is a great historical example showing that a policy rate should be in line with the level of inflation and inflation expectations in order to avoid such consequences.
Elvira NABIULLINA:
But you are absolutely right in saying that we need to study the experience of other countries, without thinking that everything will be entirely different in our case and that such experiments may be conducted with no effects on inflation. It would not come without consequences, and the price would be very high.
QUESTION from Market Power project:
Last year, we witnessed how important changes in macroprudential limits are for monetary policy, so we would like to gain a clearer understanding of the Bank of Russia’s motivation in applying these regulation measures. As compared to the key rate revision, which usually happens according to a certain schedule and is accompanied by a discussion like the one that took place today, changes in macroprudential limits happen more sporadically. Does it create an information asymmetry, in your opinion? In addition, what should we do to better understand the Bank of Russia’s reasoning behind the application of macroprudential measures, what should we pay attention to first?
Elvira NABIULLINA:
I would like to highlight once again that macroprudential policy is different from monetary policy. We do not implement macroprudential policy to support or replace monetary policy, as it is used independently and is aimed at limiting systemic risks.
Another thing is that when a credit boom happens, banks tend to employ a less conservative approach to assessing borrowers and their creditworthiness, becoming more ready to take on risks. This creates risks to households, businesses, and banks and requires tight macroprudential measures to limit these risks.
Therefore, we take macroprudential measures to constrain lending to individuals with high debt burden and ensure that banks form capital buffers. By the way, this year, we have also started to limit lending to highly leveraged companies.
As regards more systematic approaches to macroprudential policy, the latter is a rather new concept in the international practice overall. Russia is probably one of the few countries that take these measures very actively. Not so long ago, namely in May, the Bank of Russia published its report Main Macroprudential Policy Approaches, detailing our decision-making process. Starting this year, these decisions are comprehensively reviewed at the meetings of the Bank of Russia Board of Directors for us to consider all measures simultaneously. Before, we reviewed limits and add-ons at different times. Now, we are reviewing them comprehensively.
A regular meeting on macroprudential measures will take place next week. However, in order to ensure greater predictability of our macroprudential policy decisions, starting from 2026, we will publish the schedule of the Bank of Russia Board of Directors’ meetings on macroprudential policy. So, there will be no information asymmetry.
QUESTION from Dengi Ne Spyat channel:
Our question is about the ruble. In your opinion, how vulnerable is the ruble to the expansion in the budget deficit, given key rate cuts and internal borrowings?
Elvira NABIULLINA:
The ruble’s sensitivity to an increase in government expenditures and the budget deficit is limited, irrespective of the ways to finance it in the current conditions.
Both our forecast and the key rate decision factor everything in – business activity, domestic demand, monetary conditions, fiscal policy, and the impact of the key rate on the exchange rate. We estimate the future key rate path taking into account the balance of all risks. We do not see any risks here.
QUESTION from Kommersant:
Is it possible that the proinflationary effect of the ruble depreciation will be offset by the increase in budget revenues and will have no particular influence on monetary policy?
Elvira NABIULLINA:
As I have already said, we do not deem the exchange rate to be an independent factor because it depends on our monetary policy. All other things being equal, tight monetary policy contributes to the stabilisation of the exchange rate.
Surely, we take into account the impact of fiscal policy too. We rely on the parameters that have already been announced by the Russian Government.
Does one thing offset the other? I do not really see any offsetting happening here.
Alexey ZABOTKIN:
No, this is not the underlying logic behind our approach.
QUESTION from Moskovsky Komsomolets:
Our question relates to sanctions. Since 2014, over 30,000 sanctions have been imposed against Russia, with some of them targeting the financial sector. The EU has recently adopted the 18th package of sanctions, and Brussels has already started to discuss the 19th. New sanctions are different as they involve not only a disconnection of 22 new banks from SWIFT but also a prohibition of all transactions, implying a further toughening.
We would like to know how serious this blow is to the Russian financial sector. Which sanctions have hit the financial sector the hardest so far? In view of the 19th package of sanctions, what other blows does the Russian financial system have to prepare for and are monetary authorities ready for them?
Elvira NABIULLINA:
I would like to refrain from discussing which blows might be dealt to the financial sector. However, we do see that many sanctions in fact target the financial sector and these sanctions are becoming tougher. That is, I do not remember a year when sanctions were not tightened over the last few years.
So, we always know that this risk exists, which is why we have an alternative forecast scenario in addition to the baseline one. The baseline scenario assumes that sanctions will stay more or less at the same level. Surely, they change from time to time. Therefore, we also develop a risk scenario examining a possible toughening of the sanctions.
What can I say in general about the assessment of the financial sector’s resilience to these sanctions? I believe our financial sector has proven, both by practice and experience, that it is resilient enough. Our policy is intended to ensure that its resilience does not reduce. This includes macroprudential add-ons, a return to those banking ratios that we had before, which is going according to plan, as well as maintaining capital buffers.
Although, you know, banks do sometimes complain (or perhaps not just sometimes, but often) that our regulation is too stringent. Nevertheless, we believe it is very important to maintain the resilience of the banking system. This is probably the most important thing in order to cope with any external shocks, whether these are shocks stemming from sanctions or from the global economy.
Generally, financial institutions are well aware of this risk as they do not live in a vacuum. So, they understand that this risk exists and develop their risk management policies based on the possibility of such events. Therefore, I believe that they are quite resilient to this type of sanctions.
QUESTION from Bitkogan project:
At the previous press conference, you said that GDP growth is closer to the lower bound of the forecast range. However, the Bank of Russia has not changed its economic growth forecast. Does this mean that the Bank of Russia has become more positive about economic growth prospects since the last meeting?
Elvira NABIULLINA:
Indeed, we have not changed our overall GDP estimate for this year. We assume that GDP might be supported by a recovery in exports and production due to the changes in OPEC+ restrictions.
However, I do not recall us saying that GDP in Russia is closer to the lower bound.
Alexey ZABOTKIN:
I do not remember that either. I think we mentioned that, as of early June, the data showed that 2025 Q2 levels were slightly below the short-term forecast for 2025 Q2 published in the Commentary on the Bank of Russia’s Medium-term Forecast (following the April meeting. – Ed.).
That said, as you may remember, there was no data for May at the beginning of June, while the May performance was very strong.
Therefore, overall, 2025 Q2 actually turned out to be quite close to what was expected in the April forecasting round.
QUESTION from Elakhovsky YouTube channel:
The increase in housing and utility tariffs in early July led to a rise in the CPI of just under 1 pp. According to the Bank of Russia’s estimates, to what extent will this specific inflation spike be then offset by a reduction in consumer spending in other categories of goods and services? After all, roughly speaking, it is much more difficult to pay for utilities than to buy a bar of chocolate.
And as a follow-up to this topic: as per the Bank of Russia’s estimates, how much will regular annual tariff increases prevent inflation expectations from anchoring at a lower level?
Elvira NABIULLINA:
It is probably inaccurate to say that the effect of higher utility tariffs will be completely neutralised by a reduction in consumer spending in other categories. This may indeed happen to some extent, as the proportion of income that people will have left after paying for utilities will shrink.
However, some households with savings may become less inclined to save further: people will continue to consume the goods and services they are used to by reducing the amount of money they have saved or are saving. Therefore, it is quite difficult to determine the extent to which this neutralisation may occur, but a certain degree of it is indeed possible.
The second part of the question is very important. Surely, rising utility tariffs push up inflation expectations when these tariffs are increasing faster than inflation. This is obviously not a factor that would contribute to the anchoring of inflation expectations. Simultaneously, unanchored and elevated inflation expectations are a factor that might require keeping the key rate higher than if inflation expectations were anchored at a lower level.
Alexey ZABOTKIN:
We always emphasise that if there is a part of the consumer basket, especially one as significant as housing and utility services, which is rising faster than the inflation target, then the rest of the basket will have to increase slightly more slowly than the target rate for overall inflation to be 4%.
QUESTION from PRO.FINANSY project:
Right now, many people who want to take out a mortgage are waiting for affordable loan rates. So, the question is: at what level will the majority of households most likely start taking out mortgages? At what level of the key rate do you anticipate a return to mortgage lending volumes comparable to those of, say,
Elvira NABIULLINA:
As I have already said in response to one of the previous questions, people take out mortgage loans depending on their situation, expenses, and needs, as well as their capacities and life circumstances. In answer to the question when mortgages could grow significantly, including without fiscal support, without such large-scale and costly support programmes, I would like to recall the period when our inflation was around 4%, that is, in
Will mortgages return to the rates seen over the last
QUESTION from Expert:
Today, at the Financial Congress, you noted that the labour market tightness is becoming less acute. The current Regional Economy report also elaborates on this thesis, stating that more and more companies are dropping out of the wage race. According to the report, this is happening not so much due to the reversal of the trend (as recently as May, the unemployment rate fell to 2.2%), but rather because the capacities to pass rising labour costs into output prices are gradually being exhausted. What level of unemployment does the Bank of Russia consider comfortable, that is, one that would require the least attention when making decisions on the key rate? How likely is it that the unemployment rate will exceed 3% by the end of the year?
Elvira NABIULLINA:
We do not publish labour market forecasts, especially since we do not have an unemployment target. Nevertheless, we do closely monitor the situation in the labour market, as it is an important factor, especially now, to take into account when making monetary policy decisions.
That said, the natural rate of unemployment may change over time for various reasons. Notwithstanding, for the Bank of Russia’s policy, it is important that the situation in the labour market is developing in line with the goal of achieving 4% inflation.
What does this mean specifically? In terms of quality, it means that labour shortages should ease and that wage growth should be in line with productivity growth. For the Bank of Russia, this is the indicator that the labour market has returned to normal.
At the same time, unemployment does not necessarily have to go up because some industries satisfy their hiring needs more quickly, while others do it more slowly. Furthermore, as some companies cut their headcount, workers move from one company or sector to another. Now, we do see a decline in the labour market tightness.
This is shown in the latest issue of Regional Economy, which has a special section about the labour market. Indeed, the share of companies that wish to reduce their headcount has grown by 6 pp.
But I would like to point out that most companies are not planning to do so anyway. Twice as many companies want to expand their workforce. Previously, when staff shortages were more acute, this ratio was probably even higher. Nevertheless, even now, the number of companies that wish to cut their headcount is half the number of companies that wish to expand it. The latter are companies that are ramping up production due to high demand for their products.
Nevertheless, what we particularly emphasise in our answers to many questions is that it is impossible to draw conclusions about the entire economy based on a single industry or a single enterprise. We have seen heterogeneity grow amid structural changes as some companies are scaling up their operations, while others are optimising them.
QUESTION from Economikal Telegram channel:
I would like to expand on the first question asked today, because my interest has not been satisfied. Last week, Bloomberg published an article claiming that two systemically important banks had approached the Bank of Russia for advice on potential capitalisation over the next 12 months. I am not asking you to comment on these rumours, but I would like to know the following: if banks do suddenly need recapitalisation, what support measures or instruments does the Bank of Russia have at its disposal? Would it temporarily reduce the ratios or acquire a stake in these banks?
Elvira NABIULLINA:
Although you do not want me to comment on these rumours, I will repeat that they are entirely unfounded. It seems to me that someone is deliberately stirring the pot.
I have already explained why there is no cause for concern, and I can substantiate this with figures as that is what we need to look at – figures and financial indicators. Banks are resilient, they are making profits, they have capital buffers, and all this allows them to feel quite confident.
But even if we assume a hypothetical – I emphasise, a hypothetical – stress scenario in which certain banks reach their capital adequacy ratios, they will be able to manage the situation without outside help.
This entails a slowdown in the loan portfolio growth, among other things. If there are no sources of capital, if a low-profit bank cannot increase its capital using its profits, then it will expand its lending more slowly or not at all. Instead, other banks will expand lending because there is an overall capital buffer in the banking system. Some banks may simply grow more slowly.
In other cases, it might involve the sale or securitisation of the credit portfolio to the market. These are in fact well-established and fairly standard procedures. The Bank of Russia is keeping its finger on the pulse, but I see no grounds for considering state support in any form.
QUESTION from Respublika Tatarstan newspaper:
Many Telegram channels reported that the July increase in housing and utility tariffs across the country was higher than announced. The main reason for this is that it varied from region to region, reaching as high as 20% in some of them. How does the Bank of Russia take into account the heterogeneity of such increases? After all, businesses factor this into the prices for their products and services. Households are also very sensitive to such hikes. Will this affect inflation expectations and future key rate decisions?
Elvira NABIULLINA:
Certainly, people judge inflation primarily looking at the figures on their housing and utility bills. If they are rising, people expect an overall increase in prices, which affects inflation expectations. I have already spoken about this.
Why are we concerned about inflation expectations? They are quite tangible, even though they are called ‘expectations’. It is precisely based on their expectations of how prices will rise in the future that people decide what to do at the moment: spend, save, or, if possible, spend more or less.
If people are not inclined to believe that inflation will go down or that this decline will be significant and long-lasting, this will spur price growth, narrowing the room for lowering the key rate.
As for the regional heterogeneity of utility tariff increases, such heterogeneity exists everywhere, not only in utilities but also in the growth of prices for all other goods and services. By the way, in the Regional Economy report, we show precisely how the situation differs across regions.
Nevertheless, in the regions paying more attention to the development of competition and production, we see that prices are rising more slowly overall, while in others they are growing faster. We have said several times that inflation is influenced not only by demand, but also by the supply of goods and the availability of conditions for output growth.
Another point is that the lower headline inflation (which we influence using the key rate) is, the smaller the differences are in price growth across regions. When inflation in Russia was around 4%, the spread between regions in terms of price growth was smaller than it is now. In our opinion, this spread will narrow as inflation decelerates.
Alexey ZABOTKIN:
A couple of facts. When inflation was low, that is, close to 4%, the difference in annual inflation between the region with the lowest inflation rate and the region with the highest one was
Therefore, the lower the inflation rate is, the more uniform price growth is across regions.
QUESTION from Anna_finance project:
You said at the St Petersburg International Economic Forum that the Bank of Russia had prepared a draft of the so-called ideal IPO. The document calls for a serious preparation of companies for an offering, including changes in management’s work efficiency and motivation. I wonder what would you consider fundamental to the preparation of companies – state-owned companies in particular – for an IPO? I am especially interested in your opinion on what needs to be changed in terms of the quality of management’s work and motivation.
Elvira NABIULLINA:
When it comes to preparing state-owned companies for an IPO, it is crucial to understand that it will be necessary to balance the interests of the state as the controlling shareholder with those of the new private minority shareholders. Private minority shareholders are interested in receiving returns that are no lower than market rates. In this regard, management, especially in state-owned companies, has a crucial role to play. It should be interested not only in a high-quality offering at an adequate price, but also in the subsequent growth of the company’s capitalisation.
All over the world, long-term stock compensation programmes are used for this purpose. In Russia, such programmes are used either by new issuers entering the market or by some large, established market participants. These are programmes that give managers the right to receive shares or remuneration or to buy shares at a price lower than the market one upon achieving KPIs (key performance indicators).
In companies with state participation, such long-term incentive programmes cannot yet be used because, according to the Russian Government’s resolution, the variable part of the remuneration must depend on operating indicators and cannot depend on capitalisation. However, what we want is management working to make the company attractive to investors and shareholders – working towards increasing its capitalisation.
Perhaps you know that the Russian Ministry of Finance has proposed amendments to the Government’s resolution that removes this barrier so that state-owned companies could use such long-term incentive schemes. We support this and, in our view, it is fundamentally important to create, as you said, incentives for managers.
In addition, it is certainly crucial that state-owned companies be willing to commit to disclosure. Disclosure is important to investors not only when they buy shares in the market. When a company goes public, it assumes responsibility for disclosure. Investors should be able to make timely decisions on disposing of shares, which is why disclosure is so important.
For this purpose, we are engaged in discussions with the Government to ensure the necessary level of disclosure, which is crucial for shareholders.
QUESTION from Reuters:
In terms of the future key rate path, the budget seems to be the key internal factor, and you spoke about it in neutral terms today. But, surely, you are holding some preliminary discussions with the Ministry of Finance on the matter? Should we expect any surprises this autumn? Perhaps, fiscal consolidation will start after all? How will the fiscal rule-based cut-off price change? Can you say anything about that?
Elvira NABIULLINA:
Fiscal policy is indeed a very significant factor in our decision-making. Let me remind you that we always proceed from publicly announced fiscal policy parameters. We also consistently emphasise that changes in the budget may pose a risk to our baseline scenario and may require adjustments to the key rate path.
However, fiscal policy is not the only parameter that has an impact here. We still consider the effect of fiscal policy in a comprehensive manner.
We do not expect any surprises this autumn. In any case, we are not aware of any surprises to expect.
I know that many people are currently concerned about a possible decline in commodity prices and, as a result, a shortfall in revenues. However, what is important for monetary policy is not just changes in revenues and expenditures, but changes in the structural primary deficit. This is because a simple expansion of the deficit associated with lower revenues does not significantly affect the assessment of the impact of fiscal policy on demand and inflation. This effect is smoothed out by the fiscal rule. Therefore, the most important thing for us is probably to follow the fiscal rule.
Is the fiscal rule sustainable in the face of changing external conditions? This, of course, requires discussion, including regarding the cut-off price for oil. Nevertheless, in our view, if it is to be changed, then definitely towards tightening, considering, among other things, long-term trends in commodity markets. A lower cut-off price will certainly ensure greater resilience to possible external shocks from energy markets. This is an important indicator.
QUESTION from state TV and radio broadcasting company Belgorod, Belgorod:
The high key rate has led to a slowdown in inflation, as evidenced by statistics and experts from the Bank of Russia. However, in informal conversations, especially with businesspeople, one often hears sceptical comments that the economy is barely holding on and that the key rate reduction is nothing more than a political move. Can you comment on whether this is true or not?
Elvira NABIULLINA:
Surely, there are many voices and expert opinions in favour of lowering the key rate, and they are quite understandable. However, we do not perceive them as pressure, and we make decisions on the key rate independently, as required by law, based on our own analysis of the current situation, forecasts, and risks. Surveys of businesses and meetings with them that we conduct throughout the country provide us with a great deal of insight into what is happening. These meetings and surveys show that the expansion in demand is indeed decelerating.
However, the situation varies across sectors, with companies that have accumulated debt in previous periods and may not have managed their debt situation very well experiencing difficulties now. Nevertheless, we expect positive growth rates overall. Companies are supported by the strong financial results of previous years, despite a slight decline in their current financial performance.
Attempts to pressurise the Bank of Russia into lowering its key rate despite inflation would in fact do the economy a disservice. Why is that? Because if such persistent pressure is exerted, society may become concerned that the Bank of Russia has cut the key rate not because inflation is steadily declining, but because it has been forced to do so, which means that inflation will still be higher. This is especially true if, simultaneously, statements are made that tolerating higher inflation or a weak ruble exchange rate for several more years is a viable option.
What will happen in this case? Inflation expectations will remain high and unanchored for longer, requiring the Bank of Russia to pursue tight monetary policy for an extended period. In other words, such attempts to exert pressure will essentially result in higher interest rates.
Therefore, we view this as an expert opinion. What is important to us is what is happening in specific companies. We meet with them, study their financial statements, and closely monitor what is happening not only in the economy as a whole, but also in specific sectors and regions.
QUESTION from Vedomosti:
Today, Deputy Prime Minister Marat Khusnullin said that the Government is currently considering a State Duma deputies’ initiative to differentiate subsidised family mortgage rates depending on the region and the number of children. What does the Bank of Russia think about differentiated subsidised rates? And what does the regulator think about changing the parameters of this programme in general?
Elvira NABIULLINA:
This is within the Government’s mandate. We did not participate in the latest discussions, so I do not yet know what differentiation parameters are being discussed. In principle, it is possible to adjust the programme and make it more targeted in terms of family policy and regional differentiation. However, in our opinion, this should be done within the existing scope of the subsidised programmes. This is because an expansion in the subsidised programmes would require us to maintain higher interest rates for everyone else. In our view, if this is to be discussed, it should be done within the existing scope.
QUESTION from InvestFuture project:
My question concerns the recent high-profile news about the sale of 5% of Sovcombank on Avito. We already know that there are these strange cases where marketplaces start engaging in financial activities, and the Bank of Russia has warned about possible risks here. What is your position on this case? What can you say about it in general? Could we hypothetically come to a point where similar marketplaces will appear, and they will be allowed to sell financial instruments?
Elvira NABIULLINA:
You know, it is one thing to advertise a sale, which can be done anywhere. Although we do have advertising legislation that stipulates certain requirements. But it is quite another thing to actually sell something. On financial platforms, or so-called financial marketplaces, you can already buy bonds and units of unit investment funds, but not shares.
If you are referring to the prospects of organised trading on marketplaces, then these platforms will need to obtain a licence and comply with numerous regulatory requirements to do so. There should be no regulatory arbitrage here.