Statement by Elvira Nabiullina, Bank of Russia Governor, in follow-up to Board of Directors meeting

Today, we have made the decision to cut the key rate to 14% per annum. We consider the observed acceleration of price growth to be temporary. We still assess underlying measures of inflation in the range of 4 to 5%. Businesses expectations about demand declined in June as is evident from high frequency data. This might suggest more moderate demand in the future which will limit the opportunities for companies to pass through higher costs to prices. We have taken into account July's surge in households inflation expectations in response to the developments in the fuel market which might trigger second round effects on inflation. In view of this and a more expansionary fiscal policy stance, we need to ease our monetary policy more smoothly. Accordingly, we have revised the key rate path for 2026 and 2027 upwards. I would now dwell on the rationale for our today's decision.

Firstly, inflation. Price growth accelerated in June, which was largely provoked by the situation in the fuel market, as well as growth in fruit and vegetable prices after their sharper than usual decline in spring. High frequency data suggest that increased fuel prices have begun to feed into prices across a broad range of goods and services. Expectedly, this has translated into inflation expectations surging in July. Petrol is a salient item accounting for a significant portion in households regular purchases and company's costs. As the situation in the fuel market stabilizes, inflation expectations are likely to go down. They demonstrated similar dynamics in response to a higher VAT adjusting downwards rather soon after their short-term spike. We have not changed our estimate of underlying inflation and assume that it will stay close to the current level in H2 2026. Given the realized rise in fuel prices and the subsequent increase in prices for other goods, we have revised our inflation forecast for this year upwards to 6 to 7%. After the effects of transitory factors waned and as a result of the monetary policy pursued, inflation will return to 4% in 2027 and stabilize at the target further on.

Secondly, the economy. As we expected, GDP demonstrated positive dynamics in H1 2026 after its decline in Q1 2026 which was associated with calendar and weather effects. Economic activity expanded moderately in Q2 2026. These assessments rely on industrial production data for June. Corporate investment was recovering. Growth in household consumption sped up somewhat which was partially attributable to one-off factors including pent-up demand from the beginning of the year when consumption was subdued. Further developments in the economy depend on a number of factors. The first one is the level of goods supply. In our baseline scenario, we assume that companies will restore their production capacities before the end of this year. The second factor is demand dynamics. Businesses expect demand growth to slow down as is evident from high frequency data. Given the temporary reduction in production capacities in the economy, we have revised our GDP forecast downwards. GDP will expand by up to 1% according to our estimate. The forecast for the next few years has remained unchanged. A gradual easing in the labor market will contribute to a slowdown in price growth. According to the Bank of Russia's regional offices, companies report an increase in staffing levels primarily where labor mobility is higher.

Thirdly, we assess monetary conditions as moderately tight. Money market rates and federal government bond yields have risen. However, taking our inflation expectations into account, the tightness of monetary conditions in real terms has decreased somewhat. Household saving activity has slightly weakened with its structure changing. Although deposits continue to grow, their proportion has been declining gradually. Contrastingly, the share of funds invested in financial market instruments and real estate has been expanding steadily. The increase in corporate lending accelerated in June. The retail segment recorded a rebound driven by both mortgages and unsecured consumer loans. Generally, lending dynamics are currently consistent with our forecast. While money supply growth has rather exceeded it so far, as you know, money supply has two main sources which are lending and the budget balance. The fiscal system's actual expenditures are now running considerably higher than in previous years. Accordingly, the overall dynamics of budget spending will likely be higher this year and therefore the structural deficit will be larger than assumed in the current projections. This means that all else being equal, monetary policy should ensure a more moderate rise in lending compared to the growth rates observed in Q2 2026.

As for the medium-term horizon, the government has not announced fiscal policy parameters yet. Nevertheless, it is already known that the primary structural deficit is most likely to persist through 2028, due to which our macroeconomic forecast may not rely on a zero budget balance. The government continues discussing fiscal policy parameters for the next three years. The fiscal policy stance is one of key assumptions for us and therefore we have updated our forecast taking into account our own estimate of the future path of the federal budget returning to a balanced structure. The revised key rate path reflects this estimate.

Now I would like to speak of external conditions. Inflation has continued to accelerate worldwide including due to the events in the Middle East forcing many foreign central banks to shift towards monetary policy tightening. Global crude prices remain volatile, demonstrating a strong response to geopolitics. The unfolding situation shows that if the Middle East conflict ends, the premium for geopolitical uncertainty is likely to be excluded from crude prices rather soon. As a result, the latter will return to levels which are fundamentally justified in terms of the balance in the global oil market. Taking these factors into account, we have decreased our forecast of crude prices by $5 per barrel over the entire forecast horizon. I would like to reiterate that the crude price affects the parameters of our forecast only to a limited extent since the fiscal rule smoothes the impact of its fluctuations on the economy. The balance of foreign trade in Q2 2026 was below our expectations which was associated with lower exports and higher imports including due to a stronger ruble.

I will now speak of risks. Overall pro-inflationary risks prevail over the forecast horizon according to our estimate. As before they include a slower than expected easing in the labor market. Budget parameters remain a major factor of uncertainty as I have already said. We expect government to officially announce them in September after which we will update our forecast. New risks are largely associated with the reduction in production capacities in certain industries. If supply constraints persist for longer than assumed in our baseline scenario, this may accelerate inflation including through the response of inflation expectations and second round effects. On the other hand, the temporary contraction in production capacities might have disinflationary effects as well. If business's sentiment and consumer confidence decline, notably due to this factor, aggregate demand dynamics will be much more moderate.

Winding up, I would like to comment on our future decisions. Considering new inputs regarding budget parameters and possible second round effects from the earlier rise in prices, the key rate path should be higher. We have increased its range to 14.5 to 14.6% for 2026 and 10.5 to 12.5% for 2027. There are several possible scenarios depending on how the situation will be unfolding in the future. Whatever the scenario, the Bank of Russia will make its decision so as to bring inflation back to 4% over the forecast horizon. Thank you for your attention.

We have substantively looked into two options: to keep the rate and lowering it by 25. There were individual proposals to raise it. But once again, we seriously consider two options because indeed we have analyzed the way the fuel market is developing. And first and foremost, the petrol market is what they describe as a supply shock, and monetary policy responds to such shocks in case they don't have pronounced second round effects and permeate into stable inflation, which definitely depends upon the longevity of such shocks. Whatever we are seeing, we see the way the government is taking measures to stabilize the situation in the petrol market, and actually we have very intensively listened to the reports coming from our territorial and regional offices. The situation is quite diverse everywhere, but in many regions, based on the reports from our territorial offices, the situation becomes stable. So in our baseline scenario, we assume that the capacities are going to restore themselves gradually until the end of the year. Thank you.

Well, this country's banking sector for several years has been existing under the sanctions, and a considerable number of banks are under the sanctions, and actually all of the banks that haven't been under the sanctions are ready to embrace this kind of evolution. Well, we assume that like during the previous sanction waves, everybody's going to adjust, particularly since the banking sector has quite resilience and sufficient reserve capital. So, we don't see any major problems here. Now, as far as the changing of the target is concerned, we consider that in the future it would be only possible to consider bringing it down. We don't look at it as raising it because everybody's going to lose from it. It's an illusion that the rates are going to go down as a result of it being brought up. If we raise the target, the rates will only follow suit. The market rates will only follow in this wake. So we consider that it is very detrimental to the economy. Moreover, a possible review of the target because one doesn't reach it simply undermines the faith in inflation targeting and monetary policy. So you must not sacrifice these things. Not at all.

Well, with your permission, I would argue with the wording in this question because nobody has sacrificed economic growth. The rates of economic growth currently are being defined by the availability of physical resources in the first place. Labor resources and labor productivity. Now, will there be a high inflation or low inflation? Along with that truly depends upon the monetary policy. Monetary policy provides for price stability. Let me remind you that since 2024 the inflation has gone down almost twice. It has accelerated currently but we see the reasons behind it, one of the factors. But the prices for goods and services which are stable before June they have been growing at a moderate pace about 4 to 5% if you annualize them. But if we go back to the issue of economic growth, we are all interested in higher economic growth pace but the only way to grow the economy is to more effectively utilize labor resources and grow labor productivity which is something that the government is very much on top trying to realize labor productivity programs prioritizing various projects. But this is economic policy, not administrative measures. If like has been suggested in an administrative way we should hold the prices back, I believe this can only be resorted to in an exclusive situation when there is a very dramatic change of prices for socially important goods. But these are one-off measures and they can be justified only within a short period of time because if for any significant length of time we do administrative price limitation, we'll end up having problem because if producers have cost growing and they won't be able to raise prices, they will stop production. They're not going to expand the production that generates sources for them. They're not going to be inflation, but there are not going to be any products on the shelves in the stores as well. I do believe that those who remember 1970s do recall this quite vividly and those who do won't be willing to repeat such mistakes. Thank you.

We have lowered our forecast. Well, first of all, I would like to tell you that we have a range from 0 to 1 and to the extent I recall the last Ministry of Economic Development forecast was 1.4% within this range evidently. So we have accounted for a temporary production capacities contraction, assuming that gradually they will rebound. Now with regard to the combination of lower growth rates, but still this is growth in between 0 to 1%, and inflation being 6 to 7%, and attempt to describe it as stagflation. To me, it seems that one really shouldn't use this term, this phrase as an effigy as something to make people fear, something they can't understand. Because stagflation carries certain characteristics to it like a fall in business activity, the general slowdown, high level of unemployment and very high even accelerating inflation. And at the same time the one which emerges not because of a tight monetary policy but because of an unjustified easing particularly when there is a resource limitation. There's no reason for us to talk about it because when we see our monetary policy aimed at reducing inflation, it is something that precisely helps one to avoid such a scenario. An individual year where price growth was provoked by a supply shock. No, this is no speculation. You can't attach this term to it. Inflation will happen if one responds to such shocks not adequately using an easy monetary policy to incentivize additional demand when there are no production capacities to underpin it. Which means that next years in the following up years inflation is going to happen. Exactly.

No, we don't see risks. Yes, there is a negative revaluation of securities. No, like it happens there could be a positive one as well because the banks are able to be in control of such risks. They are very well aware that the situation in the market may develop in different scenarios and so the reaction to this is that the banks must have capital for unforeseen circumstances. Because the banks have sufficient capital I believe according to our estimates is about 10 trillion currently, which is quite enough. Besides, the banks have enough profit in order to absorb such losses.

Well, you know this is a bit of a simplification, oversimplification even. Because indeed if the experts that you mention could be with hard facts prove that a quick reduction of the key rate will result in high rates of economic growth not within a short-term period but the stable one, they would definitely be awarded the Nobel Prize. Not a single country with a similar kind of conditions as Russia achieved such results. So this is just a hypothesis unfounded. But in terms of the research data, surveying data, and thorough analysis we are able to demonstrate what will happen in our situation in case of the limited resources if we were to dramatically reduce the key rate. I'm not going to go into detail because all of it is published. You can learn it from there. But we would end up having a hyperinflation if we were not to stop it on time, but continue to pursue this policy. We would end up having a hyperinflation and the economic growth wouldn't have been higher, but much lower. But our situation is not in us not having enough demand. Our problem is not in the lack of money or demand but in the fact that we've got limited physical resource, labor, production in order to grow faster. Yes, many businesses are truly being confronted by a lower demand. But that is a difference between microeconomics and macroeconomics. Because if you take a look at the whole economy, we've got production capacities and for a long period of time what we used to describe as an overheating, the demand growth was much faster than the production capacities. And a low rate won't be able to solve this. But I want you to understand me correctly and I want to caution you one must not interpret it that we're not ready to reduce the key rate principally. Let me remind you during the pandemic when our demand went down and production capacities were not fully utilized in order to incentivize demand we used to reduce the rate, it was 4.25%, which produced the expected effects and enabled the economy to restore to its potential level. But right now it's a completely reverse situation and we need to follow a different recipe. So the only way that the central bank can ensure stable GDP growth at a potential level is to achieve lower inflation. And in order to increase potential growth rate, institutional structural measures and increasing labor productivity in the first place.

The only recipe here is to reduce inflation in order for people to see and understand and accept that it is low. But it is not that we need to touch 4%. It is necessary to keep it there for a long period of time. But whenever you are talking about the individual and household behavior and expectations, it is a very important factor because behavioral economics is something that makes up a big part in the economic theory. It is well known. I mean various theoreticians and academicians and researchers know that there are a lot of mechanisms that shift the perception of reality. The way people have their expectation, the economists describe it as the cognitive distortions. And this selective lack of attention is one of the forms of such cognitive distortions. To us, this is absolutely practical in terms of its significance because it could be easy to understand the mechanics of how inflation expectations are being unanchored. When inflation remains high for a long period of time, people naturally have always been paying attention to prices growing. How can it be otherwise? But they remember our old time forecast that didn't come true, being quite skeptical towards our assurance that the regulator is going to do everything necessary to go back to low inflation. Inflation memory lasts for a very long period of time. I wouldn't believe that in our case this is much more difficult than in France that you refer to. So, what comes out of it? The first thing is that inflation expectations should definitely be accounted for, which is what we do. If they are unanchored, like in our case, you should pay even a greater attention to them compared to when they are anchored. And certainly one should not expect that inflation expectations should go down of their own volition as a result of our preaching. The only way, the only recipe like you're saying, is to reduce inflation for the people to really see for themselves that the prices are not growing as fast as they have grown used to. Thank you.

Well, there's no trap like that. When I was answering the previous question, I already mentioned that investments are there in the economy. Our investment process hasn't stopped. The rate of growth of investment, these rates have gone down but the size of investments, 42 some trillion rubles, and that is a very serious change in the level of investments. Even if you take a look at its GDP share, over the period of time that has gone down, our share of investments into GDP has grown. Most importantly, for these investments to be productive, to be effective. Well, here I guess quite eloquently I may say that over the four years investments in real terms have grown almost by quarter but the productivity of labor by 4%. This is something that one should really get to grips with particularly when we are dealing with labor shortages. Now about the importance of lending and credit. It is important to fund the economy and investments. Over the past 3 years, if one is to look at the number of businesses and how much they have been borrowing, the economy has received 38 trillion rubles. In other words, the money is there. Now the whole issue is where do they go? How are they being allocated? What is the return on them being investments and where the biggest potential of the economy is growing? And you are absolutely correct speaking about the importance of technologies, robotics and artificial intelligence definitely that requires resources. But I would like to tell you that investments into these, despite the circumstances that we're seeing, are growing at an advanced pace, much faster than the general investments. But once again I shall underscore the labor productivity in high-tech not only in investments area are important and many businesses that we monitor have been demonstrating the examples of considerable labor productivity growth without major investments. The efficiency improvement reserves in terms of the business processes and management of business processes are enormous, enormous. And certainly it is important to make sure that the resources are reallocated and redistributed towards where they are being most effectively applied, not to let them stay conserved in the sectors and businesses with a declining productivity. Mr. Putkin, this is something that has been quite thoroughly discussed during our financial congress in the beginning of July in St. Petersburg and Herman Gref gave an example of an analysis which showed that in the same sector labor productivity in different businesses is far different, way different. If you take a look at various enterprises within one sector, labor productivity is way different between them. Not because there are principally different machinery being utilized there, simply because these businesses are being managed in different ways. And actually if you compare it with other countries, the productivity gap there is much shorter. Which means that companies with lower productivity, they give up part of the market share to those who have a higher labor productivity. In our case, it shows that we don't have enough overflow, don't have enough reallocation of labor resource and resources to where labor productivity is better.

No, it does not. One shouldn't always look for something for some signals. We're trying as hard as we can to be very straightforward in everything that we say.

The market-based mortgage rates remain high but I would like to tell you that they are easing down and we do see that the volume of the market-based mortgage has been growing. Actually, the government's intention to make the subsidized programs to be more individualized also facilitates the market-based mortgage becoming more affordable. Well, once again, I say it every time, but I can't help saying it. The more subsidized loans are being given, the more impact it creates upon the real estate prices and the higher are the market based rates. Now, to give specific advice is something that I would refrain from because each one finds oneself in different conditions. Some may well be waiting for the rates to go down. Some don't want to. Some have enough savings. But I can tell you that this central bank's policy is aimed at the rates going down faster and reducing the inflation will make it possible for the market based rates to go down faster. And our ambition to make the market-based mortgage more affordable and available to a broad range of individuals, like I'm reminding everyone every time that used to be during the period of low inflation. Thank you dear colleagues.

Well, thank you very much. As far as the platform economy is concerned, this is the vector of development that is not reversible. It simply reflects the new level of technology. Development in the platform economy is a comfort to everyone. Producers, consumers. This is a venue where people can find the necessary resources with lower costs involved and much lower costs are for producers. Well, there are various issues there anyway. Antitrust regulation and whatever. But this is the trend that can no longer be stopped I believe. Now as far as the crypto tendencies are concerned, you know, this is something that is generally valuable thing to do to distinguish between the qualified and unqualified investors. This is not something specific only to cryptocurrencies because indeed qualified investors can enjoy more opportunities because they are more experienced. So they can understand the risks in risk-wrought instruments. Non-qualified investors have few opportunities because the government through the legislation tries to protect them to avoid them embracing the risks that they don't understand when they can lose their money particularly when they also borrow to remain in debt. So this logic also covers the cryptocurrencies because everybody knows how cryptocurrencies can be sequestered from the lawful owners abroad because they're being suspect of any connections with Russia, without mentioning volatility of crypto. But we're not limiting ordinary people from the possibility of gaining a status of a qualified investor. This is interpretation. There are various criteria according to which any individual can get such a status from a proprietary assessment. And this is the assessment that would take into account also individual education and background and shortly that would be also the kind of status that you would be able to get via an application. And actually, when repatriating cryptocurrency, there are no limitations. Both qualified and non-qualified investors will have equal rights and opportunities exactly like today the transfer of ordinary foreign currency to foreign accounts is not limited because that might be necessary in order to pay for health care services, for education. But investors must keep in mind when transacting abroad, they don't have any Russian law protection and if they run into any problems, they will have to try and solve them inside a foreign jurisdiction. And we actually recently saw it, such assets in foreign jurisdictions were subjected to closure, to foreclosure, and were blocked.

Well indeed they are aimed at different things and the toolkits are different but it is important to specify that the coordination within the realm of monetary policy and the fiscal policy together, I mean the fiscal policy, this doesn't mean that they both have to move in the same direction. If it's an easy monetary policy then they should be an easy fiscal policy and the other way around. But if like it is cases now, the fiscal system requires greater resources for its priority areas, then the monetary policy should take into account and must help the economy to pass through this stage without pushing prices up. Which means that the more money comes into the economy via the fiscal system, the less of it can come through private lending. Otherwise, the government won't be in a position to solve its problems. And we are finding ourselves specifically in this kind of a situation. We've got a tight monetary policy and very much incentivizing fiscal policy but it doesn't mean at all that there is a lack of coordination, that there is lack of concerting our actions. This is a good balance between the macroeconomic policy generally and we are maintaining a constant contact with the Ministry of Finance and the government in general. We are continuously discussing the way situation is unfolding. We exchange our views, our forecasts, our understandings. So to my mind this coordination is being very active and the token of successful coordination is being able to receive in advance good information about how parameters are going to be changing. To us, it is very important to understand how the fiscal policy parameters are going to be changing. We do understand that due to objective reason the changes in the fiscal policy parameters are changing more frequently and more significantly than it used to be before 2020. And so such very close contacts with the government that we're maintaining enables us to take into account such changes at the most expedient possibly expedient manner. So here each of us have our own mandate but our task is common to create conditions for the stable economic growth, to ensure macroeconomic stability, and in this way to ensure that the well-being of our citizens grows further. Yes, thank you Natalia.

We are considering different possibilities with the Minister of Finance about how to help our investors who found themselves in this predicament, how to reduce the size of the assets that they're not able to dispose of freely. But you know on more than one occasion we have been confronted by the fact that the foreign regulators they create obstacles to various mechanisms that we're trying to design. So we prefer not to officialize, to make any announcements about what we are trying to do.

No. First of all, we don't believe that that was something overly optimistic because we put together our forecast on the basis of the prerequisites that you're well aware of. We actually had also the fiscal forecast. So we acted upon the announced budget parameters that we used to have at the point of time. So whenever the situation changes we update our forecast because it doesn't mean that at that point in time it was overly optimistic. No, it was fully in line with the situation that we were going through then. Now as far as strengthening the importance of the corporate lending and generally lending growth in spring and during the second quarter, this lending growth was quite expected in the light of standard lags from our decisions to ease the monetary policy. We have been easing the monetary policy since the middle of last year. So of course that could not but impact the lending dynamics. But over several spring, in April, May, yes April and May the lending growth has remained and we used to say that that could be of concern because in July we noted a certain slowdown and certainly considering a greater stimulus from the fiscal policy, we believe that the lending growth during the second half of the year will be more subdued compared to the second quarter this year. Thank you.

We believe that the attraction of saving remains actually. You could see it through the deposits in the bank growing. And our policy is specifically aimed at making the ruble and the ruble denominated savings to be attractive. And as a rule that means that the interest rates should be above inflation and we actually see it. Now what I should recommend, usually I refrain from offering such recommendation. I will simply underscore that our policy is specifically aimed at making ruble assets attractive in the minds of our citizens.