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 15% per annum. As we expected, price growth has slowed down following its temporary acceleration in January. The response of inflation expectations to the increases in VAT and fees has been moderate. Consumer demand is cooling. The economy is approaching its balanced growth path. This has enabled us to continue easing our monetary policy stance. However, there are two important factors of uncertainty which will influence our future decisions. These are changes in the external environment and adjustments to the fiscal policy parameters. This calls for a cautious and prudent approach to decision-making in the future.

I would now dwell on the reasons behind our today's decision. Firstly, inflation. In February, current price growth rates declined back to the levels of the second half of the previous year. This confirms our preliminary estimates that higher VAT, excise duties, and fees were passed on to prices mainly in the first few weeks of 2026. What is essential is that measures of underlying inflation also indicate moderate price pressure in February. As we noted earlier, it is impossible to completely strip out the effect of increased VAT from the calculation of most of the measures of underlying inflation. Therefore, February is more illustrative of underlying price growth than January. Overall, according to our estimates, current underlying inflation did not speed up at the beginning of the year and stays in the range of 4 to 5% in annualized terms. The impact of high taxes on households and businesses' inflation expectations has turned out to be short-lived.

In February and March, inflation expectations returned to last year's averages. However, despite the notable slowdown in actual price growth over the previous year, inflation expectations remain elevated, which is a matter of concern to us. High inflation expectations are one of the reasons why we need to be cautious when cutting the key rate.

Secondly, the economy. High-frequency data for the beginning of the year demonstrate cooling in domestic demand, especially consumer activity. As we expected, an additional contributor to this was expensive purchases partly rescheduled for the end of last year when people were seeking to buy some goods before the increases in VAT and the vehicle recycling fee. Another indicator of moderate demand dynamics in Q1 2026 is current estimates in business surveys. A considerable decrease in estimates at the beginning of the year was reported by small and micro businesses. In the next few months, as the effects of intertemporal redistribution of purchases dissipate, we will be able to assess the sustainability and magnitude of the deceleration in consumption growth more accurately.

Developments in the labor market are consistent with the earlier trends. Unemployment stays at its record lows. Nevertheless, surveys show that staff shortages have been easing gradually, with companies' recruitment and wage indexation plans moderating yet further. Fixed capital investment edged down as of the end of 2025, while staying close to the record highs achieved in recent years. Over 2025, fixed capital investment totaled 42.5 trillion rubles, which is almost one-quarter more than in 2021 if assessed in real terms, that is, adjusted for accumulated inflation. However, the situation is still uneven across industries. Investment activity has remained high primarily in manufacturing and services, including owing to government support and import substitution.

Investment plans for this year are more moderate. Nonetheless, business surveys show that there are more companies planning to build up rather than reduce their investment and production capacities in 2026. According to our estimates, the economy's production capacities have continued to grow, and given the currently observed moderate dynamics of demand, it will align with the supply of goods and services in the next few months.

Thirdly, monetary conditions. They have eased somewhat while remaining tight. Interest rates in the main financial market segments have continued to decline gradually, driven by the earlier key rate decisions. Credit growth stays moderate. A temporary acceleration in retail lending, which was attributed to heightened demand before the change in subsidized mortgage terms, has been expectedly followed by a cooling. Corporate lending has returned to moderate growth rates after the seasonal effects of budget spending dissipated. Concurrently, the propensity to save remains high compared to historical levels while declining slightly. Its decrease is natural amid monetary easing and is very smooth. The growth rate of monetary indicators is currently close to the level observed over the period of sustainably low inflation.

Now I would like to speak of external conditions. They have been in the limelight in recent weeks. The situation in the Middle East has been considerably influencing global commodity markets. The resulting effect on the Russian economy will depend on the duration and scale of these geopolitical events. On the one hand, in the short term, the domestic economy will be mostly influenced through higher prices for crude oil and other Russian exports. This is a factor supporting export earnings and the ruble. On the other hand, in the longer run, the situation in the Middle East might adversely affect both global demand and investment growth prospects, accelerate inflation in economies importing energy commodities, and disrupt supply chains. Actually, this is yet another supply shock that will influence costs worldwide and to a certain extent pass through to prices in the Russian market. Additionally, problems in logistics may have a negative effect on the quantities of Russian exports. So far, it would be premature to give any estimates of the overall effects of external events on the Russian economy.

The ruble has weakened over the past few weeks, but its exchange rate is hovering in the range of the previous year. It is too early to speak of a clear trend forming. The exchange rate was not a determinant factor for our today's decision.

I will now speak of risks. As before, we consider that pro-inflationary risks prevail. The risks of second-round effects of the increases in VAT, excise duties, and fees, including their impact on inflation expectations, have subsided. However, the estimates of future inflation, especially among households, remain elevated. Their decrease might be additionally slowed down by adverse external developments. Risks associated with staff shortages persist. As I have already noted, the external environment is a factor of rising uncertainty.

Fiscal policy is another important factor having a notable impact on room for cutting the key rate. Changes in fiscal policy parameters relative to the earlier announced ones might increase or limit the room for lowering the key rate. In view of this, all the parameters are critical, including the configuration of the fiscal rule, the size of the budget deficit taking into account parameters of regional budgets, and the sources of financing the deficit. As we said earlier, the decline in the cutoff oil price provided for by the fiscal rule should lead to a commensurate revision of spending, which is necessary to ensure a balanced federal budget. If this happens, the effect will be disinflationary. By contrast, if changes in the fiscal rule parameters are not accompanied by adjustments to the budget expenditures but only entail higher borrowings, this will require tighter monetary policy, all else being equal.

Winding up, I would like to comment on our future decisions. Considering the dynamics of inflation and inflation expectations and the cooling in domestic demand, today we have made the decision to cut the key rate as a result of it. However, the uncertainty associated with the external environment and future fiscal policy parameters has notably increased. We might need time to comprehend how the situation will be unfolding. At the upcoming meetings, we will assess the need for a further key rate cut. But this will not be done as a matter of course. It is our well-balanced and consistent monetary policy that has formed the prerequisites for returning inflation to the target. We will move forward in a smooth and balanced manner so as to bring inflation down to 4% and stabilize it sustainably close to this level further on. Thank you for your attention.

We had a broad consensus around reducing the key rate by 50 basis points, although there were individual proposals to keep it as it is as well as to bring it down by 100 basis points.

Well, the fiscal rule parameters are still being debated by the government. Indeed, I do agree that there is more uncertainty with regard to the crude prices, but the fiscal rule is an important parameter to be estimated in terms of the conservative assessments for the long-term oil price in mind. So it seems to me that this discussion is ongoing and it is important to calibrate the fiscal rule in such a way and the cutoff matrix in such a way so that the budget remains balanced. That is a very important consideration that we take note of when deciding on the key rate.

As far as the ruble exchange rate and the currency exchange rates impacts are concerned, the risk and easing that we saw can be explained by a mix of two factors, which I would refrain from describing as fundamental. The first one: there was a very low price for oil in January and February, and we think that the timing required in order for the pricing effect to manifest itself and the coming of currency earnings is different. We can now witness the consequences of the low oil prices in January in combination with the second factor, which is putting the fiscal rule effects on hold. Because in a normal situation, if the oil price is lower than the base price, then the currency is sold from the National Welfare Fund, which partially compensates for it, which didn't happen. So that's why we see what we're seeing. But you currently see that the price for the exportable oil is currently higher. So we'll see what will happen with either relaunching or not relaunching various transactions as part of the fiscal rule. Just a short deviation to the exchange rate dynamics recently is a vivid demonstration of the extent to which the fiscal rule mechanics are so important to save the economy from the oil price volatilities.

It is quite difficult right now to put anything into modeling because the subsequent effects strongly depend upon the extent to which the situation is long-term or short-term. We're rather trying to analyze possible channels via which the impact may come to us. As I said, they're quite diverse. In a short lead way, it could be the support for the export earnings and consequently the support for the ruble as part of it. However, longer term, if the consequences are strongly felt by the global economy, and such kind of shocks may definitely lead to this outcome, so this could also be related, on the contrary, to the decline of the demand for our export staples. So currently, when we're making our decision, we took into account as a factor a seriously growing uncertainty, which is in the meantime quite difficult to calibrate. So we'll see how the situation unfolds.

As of the middle of last year, indeed, we have been bringing the key rate down, and throughout this period of time, the key rate in a cumulative way was reduced by six percentage points. And one should mention that the key rate, of course, not automatically but following the wake of the reduction of the key rate, for example, we see that as far as the market-based mortgage demonstrated almost a similar 6% decline. With regard to the consumer lending and automobile loans, the rates are also going down. But generally speaking, the level of rates there remains relatively high and unstable. Why? Because, for example, in automobile lending, there are quite a few subsidized loan programs funded not by the government but by the banks together with the automobile manufacturers. And so at one time these programs have a broad coverage, at other times not, and that impacts the rates. But it seems to me that the trend pointing towards the rates flowing down is there, and that is the result of the declining inflation.

Now, in terms of how the market rates are going to be going down further, it depends upon the actual inflation, of course, and the reduction of inflation expectations and the extent to which the concerns will disappear. I mean, over the high inflation remaining there, every time I repeat it, not only the actual inflation but also the inflation expectations affect the level of rates and the rate dynamics. How does that happen? Let's begin with the deposits. If households expect high inflation to come their way, then respectively the deposit rates should take it into account. So currently, you know, the inflation expectations a year ahead are 13.5%, and so respectively the deposit rates, in order for people to save, in order for them to be stimulated to save, should be higher. And so quite clearly the lending rates, including the consumer loans, the ones that you asked about, they cannot be lower than the deposit rates because the loan interest should pay for the interest spending that the banks incur while servicing the deposits. This slowing process in many ways is conditioned by households having lower expectations. Once again, I shall remind you that the high inflation expectations, they continue to be a concern to us.

Crude prices do impact the monetary policy decisions, but that is not the only factor. You cannot look at it separately from other factors. We account for all of them. And one should not forget about the fiscal rule here either, because if the oil price becomes higher than the base price, the cutoff price, then this delta is being compensated for by the National Welfare Fund. Of course, there is a bit of an influence because most of the export earnings are being sold by the exporters, but to a larger extent the fiscal rule neutralizes this negative outcome and in this way makes the situation in the economy and the currency market stable, something that Mr. what Kin spoke about. Would you say something?

Now you also asked about other commodities that we export. As you see, the dynamics there are very diverse, have been over the past several weeks, and of course we do monitor it. And by the April board meeting, we will have a better understanding of the way this plays out. What is the scale and what is the longevity of the effects which are related to various disruptions in the ships passing through the Strait of Hormuz, because that does affect most of the global supply chains, which are not only limited to oil and gas.

Well, in any case, against all other things being equal, if you consider the depreciation of the exchange rate, this is a pro-inflationary factor. Appreciation is disinflationary. But it is also important to consider the range within which the exchange rate is fluctuating and what businesses, you know, put into their business decision-making. With regards to the exchange rate, here we see that currently the exchange rate, even despite quite a high volatility within the ranges that it was registered in last year, and alongside with that, we've already told you that we are surveying businesses in terms of what is the exchange rate that businesses reflect in their business plans. And in the meantime, we feel that the kind of weakening that took place stays within the framework of the expectation that the businesses have had. So in terms of there being any additional pro-inflationary effect, it doesn't make any sense to really look into it. But as far as the future is concerned, we'll see. But there is no definitive level of the exchange rate past which we ought to start taking into account as a pro-inflationary factor. It all depends upon the situation that I've described to you and other factors and what the businesses are expecting.

The government continues to discuss changes in the fiscal policy, but not only the changes in the spending are important to us, rather the general configuration. First of all, the budget deficit, changes in the fiscal rule, the cutoff price, all of this should generate an effect. If expenditures go down, something that you are referring to, so if expenditures do go down, but if the revenues go down even faster and further, and the deficits will be growing and it will be funded via an additional borrowing, that is the factor that will strengthen inflation and that will require a higher key rate. Now, on the contrary, if the expenditures go down and the structural deficit stays the same, then essentially that is a neutral thing for the key rate against all other things being equal. If the deficit reduces, that will give us more room for a further easing of the monetary policy.

Well, every family decides for itself whether to buy or to save depending upon its needs, its life's circumstances. We all understand it's far from always being possible to postpone certain things. If you get a baby in the family, so you have to spend certain amounts. But many big purchases you indeed can choose whether to do it today or maybe a year later. And the key rate here plays an important role. As you've seen, we are reducing the key rate right now. Which means that in terms of the stimuli to spend more, gradually will become more in number. But in terms of when and how and what to buy, people do decide on their own.

As I said, I shall repeat it. We feel that the consequences from the geopolitical tension in the Middle East shall depend, I mean the consequences, these consequences, they shall depend upon the further duration and the scale, including the supply chain disruption. And so such influences are very different. There is an effect from growing export revenues, which largely being neutralized by the fiscal rule, although it definitely enables the National Welfare Fund to grow its safety cushion. But there may also come certain negative consequences related to the decline in demand. So once again, I mean the demand for our commodities. So once again, I shall repeat that it's premature to make conclusions about aggregate effects because they're going to be spread out in time upon the Russian economy. Now, with regard to a high demand for RMB, we have no intention to increase the limit of transactions. Maybe you should say something.

I mentioned, I think, I shall repeat it. It's about two months long. It could be shorter, it could be longer, depending upon the logistical considerations, but on average, we believe it to be two months long. So currently, we're seeing the consequences of, in many ways, of a lower oil price registered in January.

Well, in terms of when one will be able to assess the consequences of the situation, it depends upon how long that conflict is going to play out. But definitely, one will hardly be able to do it within the next few months unless the conflict ends. As far as the impact upon the trajectory of the key rate is concerned, this separate factor cannot be a definitive one. We take into account changes in different factors because the external conditions are changing. Not only that, even the monetary policy...

Parameters represent the same similarly important factor without mentioning the actual inflation dynamics, the labor market, and we analyze it all comprehensively. In April we'll have another core board meeting where we will further specify and update our forecast. So respectively, if there is a need, we will also update the key rate trajectory. But there's one caveat indeed: the external conditions factor is important. It raises the uncertainty. If it wasn't for this factor, I should say that today we would have been debating more actively reducing the key rate by 1 percentage point.