Press conference of Bank of Russia Deputy Governor Alexey Zabotkin on draft Monetary Policy Guidelines for 2026–2028
Good afternoon.
Today, we have published the first draft of the Monetary Policy Guidelines. This is a policy paper we release annually to outline our strategy for three years ahead.
The goal and principles of the Bank of Russia’s monetary policy have remained unchanged
Our monetary policy is aimed at ensuring low and stable inflation in Russia. Price stability is a prerequisite for balanced and sustainable economic growth.
When implementing monetary policy, we follow the inflation targeting strategy.
The quantitative target is annual inflation of close to 4%. That said, we admit the possibility of lowering – but definitely not raising – the target level in the future. We have maintained an indication to this possibility in the draft document. When and if such a decision is made, the Bank of Russia will announce it in advance. An actual decrease in the target level is possible beyond the forecast horizon, that is, no earlier than 2029. For details on our position, see Box 1 of the draft document.
The key rate and communication are the main monetary policy instruments. The key rate affects interest rates on loans and deposits, the growth rates of monetary aggregates and credit, aggregate demand in the economy, and the exchange rate of the ruble. All this in turn influences how consistent households’ and companies’ demand is with current production capacities and whether the increase in demand is in line with the expansion of these capacities in the future. The resulting ratio shapes price dynamics in the economy.
Our communication, that is, explanations of the reasons behind the key rate decisions made, as well as the Bank of Russia’s forecast, including the projected key rate path, influence households, businesses, and market participants when they decide whether or not to take out a loan, make large purchases and investments, or save if it is a more reasonable option at a given moment. These decisions determine how fast demand for goods and services grows, thus impacting inflation.
As monetary policy transmits to inflation dynamics with a time lag, we rely on the macroeconomic forecast when making our decisions. The forecast is developed based on the model-based approaches that we continuously refine.
I would like to highlight that the floating exchange rate regime remains an important principle underlying our monetary policy. A floating exchange rate helps the economy adjust to a changing external environment faster. Owing to the floating exchange rate, the Russian economic authorities and the Bank of Russia are able to pursue monetary policy independently of other countries’ monetary authorities. Although capital flows now affect exchange rate dynamics to a lesser extent than before 2022, the difference in interest rates between Russia and other countries remains a significant factor contributing to the attractiveness of the ruble as a saving instrument. Therefore, the interest rate differential still impacts the ruble exchange rate, which is starkly demonstrated by its dynamics over the past year. The ruble is now stronger than it was in summer 2024, and this appreciation happened following the additional tightening of monetary policy in 2024 H2.
We need people to be confident in our monetary policy and lower their inflation expectations in order to control inflation efficiently. To this end, we announce and explain our decisions as promptly and openly as possible. Communication transparency is critical during the period of tight monetary policy for businesses and households to make their long-term plans understanding that inflation will return to its low levels and being aware of how interest rates and inflation affect each other. We seek to be closer to our audiences by engaging in a direct dialogue with businesses at the regional level and actively using social media to communicate with people. The audience of our social media channels has grown substantially over the past year. The Bank of Russia’s communication on monetary policy issues is described in Appendix 6.
Current situation
As usual, Section 2 of the Monetary Policy Guidelines provides a retrospective analysis of the economic developments and our decisions over the period from mid-2024 to date.
In 2024, inflation had been exceeding 4% for the fourth consecutive year. Moreover, the deviation of inflation from the target even increased due to a powerful impulse boosting domestic demand, which notably exceeded the capacities to ramp up supply. In response to that, we considerably tightened monetary policy in 2024 H2, the results of which we can already see now. This year, price growth rates have been going down gradually and substantially. We believe that the current degree of monetary policy tightness is sufficient for inflation to return to its 4% target by the end of 2026.
Forecast scenarios
As in 2024, the draft document presents a baseline scenario and three alternative scenarios. In terms of their configuration, they are similar to the scenarios in the previous Monetary Policy Guidelines. The different assumptions underlying the scenarios take into account both external and internal factors.
In July, we already published the baseline scenario together with the key rate decision. Let me remind you that we expect annual inflation to decelerate to
Under this scenario, the Bank of Russia will need to pursue tight monetary policy for an extended period in order to return the economy to a balanced growth path and the inflation rate to the target. The key rate will average 18.8–19.6% p.a. in 2025 and
The growth rate of GDP is assumed to be moderate in
This year, the Bank of Russia published a research paper on the methods to assess the neutral rate of interest and the long-term growth rate of potential GDP. The link to this paper is given in Appendix 7, which describes the neutral rate of interest.
Now on to the alternative scenarios. As in 2024, the disinflationary scenario assumes higher returns on investments made over the past few years as compared to the baseline scenario. This will result in potential GDP growing faster in 2026 and 2027 than under the baseline scenario. A higher trajectory of potential GDP means that aggregate supply will be able to meet higher demand in
The proinflationary scenario includes a combination of internal and external factors, which will be the reasons why demand will be higher and supply will be lower than predicted in the baseline scenario. As last year, the proinflationary scenario assumes an increase in the scale of subsidised lending programmes and a strengthening of protectionist measures aimed at supporting import substitution. In addition, it suggests that, due to increasing sanctions pressure, the growth rate of production capacities will be lower than in the baseline scenario. In this case, the toughening of sanctions will also entail somewhat lower prices for Russian crude oil than under the baseline scenario. This will mean that, with the same level of demand, inflationary pressures will be stronger as compared to the baseline scenario. Consequently, this would require tighter monetary policy in order to decelerate inflation. Considering the time lags of monetary policy transmission, annual inflation will return to 4% only in 2027.
Importantly, in this case, a steadily higher contribution of subsidised loans to aggregate demand and the increase in monetary aggregates will leave less room for an expansion in market-based lending over the entire forecast horizon and beyond. This will lead to a higher neutral rate of interest
The risk scenario follows the logic of the same scenario presented in the Monetary Policy Guidelines last year. It assumes escalation of trade tensions in the world economy, intensification of deglobalisation trends, import tariff increases worldwide above the levels predicted in the baseline scenario, and a sharp decline in the growth rate of the largest economies. The sanctions pressure on the Russian economy is likely to intensify in this scenario as well, similarly to last year’s risk scenario.
The fiscal system will provide substantial support to the economy in
Accelerating inflation will require that the Bank of Russia significantly tighten its monetary policy again. A timely and proportionate response will bring inflation down to
Among the scenarios, the baseline one is naturally the most probable. As always, it is much more likely than all the alternative scenarios combined.
Fiscal policy remains an important factor to influence the economy under any scenario. This year, we supplemented the Guidelines with a box on the interaction of monetary and fiscal policies (Box 4), detailing both the theoretical aspects and the practice of implementing both policies since the early 2000s. We show that both policies complement each other to create conditions for delivering on key public development priorities and describe how they interact with each other.
Conclusion
The Monetary Policy Guidelines clearly demonstrate that, whatever the scenario, monetary policy is capable of returning inflation to the low target and protecting the purchasing power of the Russian currency.
I would like to repeat that stably low inflation in the economy is critical for businesses to have affordable long-term financing and make plans for extended time horizons. Likewise, it ensures that households’ incomes and savings retain the purchasing power. Both of these elements are essential for the Russian economy to develop sustainably and for people’s welfare to grow steadily.