Elvira Nabiullina’s speech at plenary session of State Duma on Monetary Policy Guidelines for 2026–2028
Good afternoon, dear deputies, and Mr Volodin,
Today, in accordance with the law, I am presenting the Monetary Policy Guidelines for the next three years to the State Duma for its consideration.
Let me begin by thanking the members of the working group, and the heads of the relevant committees and factions, for their work in preparing for today’s consideration of this document. As you know, this is always a substantial, multi-stage process. In preparing the document, we incorporated your comments and questions, including those on the critical issue of interaction between monetary and fiscal policy.
In my address today, I will build on the deputies’ questions. How were they different this year? There were fewer questions on inflation, as well as less concern about the ruble exchange rate, judging by the inquiries we received. At the same time, we noted a clear increase in concern regarding the impact of the Central Bank’s policy on the economy. I will therefore begin with this very topic: the state of the economy.
Let us examine the trends in a number of key sectors.
What is immediately striking is that the situation varies across sectors, as it certainly did over the previous three years. The extractive industries have faced mounting challenges due to sanctions, declining demand, and lower prices for our exports. You are aware of the difficult situation in the coal industry. The reduction in rail freight is also linked to lower exports. However, this is not the only reason. Overall, we see cargo shifting to road transport, and road freight is growing. Construction is growing – contrary to all expectations – and manufacturing as a whole is expanding. This is especially strong in a number of machinery subsectors. Growth also continues in agriculture. Sectors related to household consumption – retail trade, paid services, and catering – are also demonstrating stable growth.
Let me reiterate, however: the disparities between sectors are more significant than ever, and this is a manifestation of the structural transformation of the economy. The difference from the past is that previously, almost all sectors grew simultaneously. This is only possible in the presence of free physical resources, primarily labour, and a relatively static economic structure. However, when labour resources become scarce, they are allocated primarily to the industries with the highest demand for their output. The aggregate result is nevertheless continued growth – including in GDP and fixed capital investment – albeit at a more moderate pace.
Investment has been rising for the fifth year in a row. Since the start of 2022, it has increased by 25% in real terms, adjusted for inflation. This year, the growth rate has slowed, which is a natural development at such a high level.
A sectoral breakdown also reveals differing investment dynamics across industries. This year, investment is declining in extraction, construction, and transport, while rising in manufacturing, agriculture, and trade.
What is driving this continued investment growth? It is primarily financed by corporate profits – by companies’ own resources. This is normal and consistent with global practice. This year, profits in the real sector have been fluctuating around 2–2.5 trillion rubles per month. This constitutes a substantial resource for supporting investment activity.
Profits have moderated somewhat compared to the record highs of the previous two years. But this is also a natural development, as businesses can no longer raise prices as rapidly, especially amid the challenges in export-oriented sectors. Importantly, most industries focused on domestic demand remain profitable. These include construction, agriculture, the food industry, and pharmaceuticals.
Now, let us turn to another source of economic financing besides profits: bank lending to companies and households.
Credit is the main source of growth in the money supply and money issuance. By raising the key rate, we have achieved more moderate credit growth and, through this channel, a slowdown in inflation. We have discussed with you at length the availability of credit for investment, but I would like to draw your attention to the fact that banks finance the real sector not only through lending. Recently, they have been more actively purchasing bonds issued by enterprises. Moreover, it is not only banks that are buying these bonds. This enables companies to cover their financing needs beyond what their own profits and bank loans can provide. For reference, the outstanding amount of bank loans to domestic enterprises currently stands at 78 trillion rubles (on their balance sheets), while the volume of corporate bonds is nearly 35 trillion rubles. This ratio is shifting in favour of bonds.
At the same time, it is essential to recognise that both the purchase of bonds and bank participation in companies’ equity are different forms of bank financing. Their significance is growing, and they cannot be overlooked. Thus, in the first nine months of this year, the total volume of funding provided by banks to Russian companies increased by 9.2 trillion rubles. This is only 25% lower than the very high figure for the same period last year.
Now let us look at how this financing has grown over the past 12 months, i.e. in annual terms.
As of 1 October, total bank financing to enterprises was up 13% year-on-year. While this below the record rates seen in 2023–2024, it nevertheless represents a high pace of growth, which, at the same time, is not fuelling inflation and is allowing us to reduce the key rate. It is also worth noting that this summer, in response to the key rate cut, lending to enterprises began to pick up.
A common argument is that these loans are not used for development, but rather for refinancing and keeping their businesses afloat. Once again, the data does not support this argument.
As you can see on this slide, the portfolio of long-term loans (the top segment of the bars) continues to expand, maintaining roughly the same share. Specifically, bank portfolios now hold three rubles in loans of over one year for every one ruble in short‑term loans. This is a stable ratio. It has remained virtually unchanged this year. Surely you will agree that banks would not provide long-term loans to a company that is struggling to remain afloat. They are more likely to extend a short-term loan, typically for refinancing purposes. Companies, for their part, naturally seek long-term loans for their investments, while short-term loans are more often used to finance current operations. Admittedly, a portion of long-term loans may be used for current operations and vice versa. Let me reiterate, however: banks would not provide long-term lending on this scale solely for refinancing purposes.
Yes, loans remain expensive, but this is a temporary situation – it will persist until the production capacity of our economy catches up with demand and a balance between supply and demand is restored. Without this balance, it will be impossible to return to a low inflation environment. It is vital to understand that the key rate alone cannot make lending cheap. Moderate interest rates only become established when inflation is low. Cutting the key rate amid high inflation would have the opposite effect, dealing a double blow to the economy: first, a surge in inflation, followed by a spike in interest rates.
Naturally, there are certainly priority tasks that cannot be postponed, and the Government is financing them through preferential lending programmes. The scale of this financing is, incidentally, very substantial. For reference, since 2020, 20% of the growth in bank financing of the economy, or 15 trillion rubles, has been attributable to preferential lending. In other words, one out of every five rubles created in new bank lending since 2020 has been a preferential loan.
How should companies develop if they cannot access a preferential loan or are unwilling to assume excessive debt at high interest rates? The most common response is a call for a further expansion of preferential lending. From the perspective of a single firm, this is an entirely logical response. I must emphasise, however, that from the standpoint of the economy as a whole and of responsible economic policy, this would be a dead end. The greater the volume of preferential lending, the higher the key rate will have to be to maintain balance and keep inflation from accelerating. Yet I am confident that we all share the same goal: we want credit to be accessible to everyone – to all citizens, all businesses, all regions, and to the federal budget itself.
In our view, under the current condition (while rates are high and before they become moderate), a crucial alternative to expanding preferential lending is for businesses to turn to the equity market and attract new shareholders. For the economy to stand on solid footing, investment must by supported by both credit and the securities market. I have already mentioned bonds. Let me return to the previous slide.
You can see that since the start of the year, the portfolio of corporate bonds on bank balance sheets has grown by 1.7 trillion rubles. This growth in bonds is a positive signal. However, equity financing (the market for public offerings and IPOs) is developing very slowly. Many companies are in various stages of preparing for an IPO, but are waiting for the right moment to list at a higher valuation in a rising market. This is a perfectly rational and understandable strategy. But can the state accelerate these listings?
We presented our proposals to the Government last year, and some progress has already been made, particularly regarding subsidies for share listings by small and medium-sized enterprises. We believe the next steps must be taken. State support should not be confined to preferential loans; it should also encompass equity listings. Companies should be given a choice – to receive support either as a preferential loan, as a subsidy for a share listing, or potentially as a tax deduction. Moreover, the incentives for accessing the equity market should perhaps be even stronger than those for debt-financed growth. Why is that? Because this approach does not lead to corporate over-indebtedness and relieves the budget of the long-term burden of interest expenditure on preferential loans. Finally, unlike bank lending, the acquisition of shares – as with bonds purchased by non-banks – does not create new money and, consequently, does not fuel money supply growth, thereby having milder inflationary consequences.
Now, let me turn to inflation itself.
When I presented the previous Monetary Policy Guidelines just under a year ago, inflation was very high. By that time, it had built up substantial inertia, requiring a key rate of 21% to break it.
Measured in annual terms over the past 12 months, inflation has fallen from a peak of over 10% in March to 8% in September. However, this 8% figure still reflects the high inflation recorded late last year. To get a clearer picture of current trends, we need to look at month-on-month price growth, annualised. From this perspective, it is evident that inflationary pressure has eased more substantially, declining from a peak of
12–13% at the end of last year to less than 7% in September.
This is why, since June, we have been able to begin cautiously lowering the key rate. Why can we not cut the rate more aggressively? Why is such a wide gap between the rate and inflation necessary? This is an entirely fair question – the gap is indeed substantial. Unfortunately, it remains necessary, and here is the reason.
First, although inflation has come down, inflation expectations remain as high as they were in 2024, when inflation was higher. Unfortunately, four years of high inflation leave their mark, and this inertia pushes up interest rates across the economy. Average rates need to be higher to ensure that, given these expectations, people remain confident their savings will not be eroded. Otherwise, households will have no incentive to save, and as a direct and entirely logical consequence, banks will lack the stable funding base needed to lend to the economy.
The second group of factors includes, of course, the issues that are on everyone’s lips and that we have discussed extensively in our meetings – namely, the increase in VAT, utility tariffs, and the recycling fee, along with rising petrol prices. In economic terms, these are all termed one-off, temporary factors. This means, for instance, that while the VAT hike does lead to a one-time increase in the price level, the direct effect of the new tax rate ends there. The tax increase does not become a permanent driver of inflation acceleration. The same logic applies to petrol: we believe the Government will be able to curb further price rises, preventing them from becoming a source of persistent inflation.
The problem, however, is that when these one-off, temporary factors act in concert, they amplify each other. This can significantly heighten public concerns about inflation, which, as I have said, may have tangible consequences – namely, the need for higher rates.
Yet that is likely not the full story. A paramount reason for our cautious pace is the situation in the labour market.
Low unemployment is an undeniable good – nobody would dispute that. Every available pair of hands is productively employed and in high demand. In our situation, however, low unemployment has already tipped over into a labour shortage. Frankly, I find it hard to point to another major economy where labour market indicators have stayed in such a zone for so long. The consequences, as we have seen over the past two years, are clear: fierce competition among firms for workers drives wage growth that outpaces labour productivity, which in turn pushes inflation higher and erodes the real value of those very wages. We are now observing the first tentative signs of an easing in the labour market, which is certainly encouraging, but these are only the initial indications so far.
We sometimes face objections to this view (an issue deputies have also raised) that cite the example of companies transitioning to a four-day work week. These cases receive a lot of attention, but our analysis shows they account for a tiny fraction (just 0.2%, to be precise) of the 74 million people employed in the economy. The vast majority of firms (and we survey up to 15,000 companies monthly across all regions) report, unfortunately, that they face a shortage of workers and find it difficult both to hire and retain staff.
This illustrates that mechanically extrapolating conditions from even a major single sector or enterprise to the entire economy results in a distorted picture. Incidentally, this is the very source of talks about recession or being on the brink of one. I would strongly urge everyone to treat such claims with great responsibility. A recession inevitably brings two consequences: a sharp rise in unemployment, followed by a decline in real wages. At present, we are nowhere close to either of these outcomes.
A high key rate helps moderate demand growth and eases the intense competition for scarce economic resources. Without this, corporate costs would rise continuously, benefiting no one – not the firms, their workers, or the economy at large.
Another manifestation of the high key rate was the strengthening of the ruble in the first half of this year.
A few words on the mechanism. High ruble interest rates lead to more moderate demand for imports and, hence, for foreign currency. The ruble also becomes a more attractive savings vehicle for both households and businesses than holding foreign currency. In other words, ruble appreciation is itself a channel through which the key rate suppresses inflation. If this channel were to be removed – for instance, by artificially weakening the ruble, as some occasionally suggest – the key rate would have to be set even higher.
There is one more factor that, I believe, should be considered not only for assessing the current situation but also looking ahead. We are increasingly focusing our economic development strategy on domestic resources and domestic demand. With more restrictions on imports, both external and internal barriers, and import substitution, demand for imports will decrease. This represents a fundamental shift favouring a stronger ruble.
Let me stress that in our dialogue with businesses, many tell us that what matters most to them, and the economy overall, is not so much the level of the exchange rate (while it is certainly important for exporters, as it reflects the current relationship between supply and demand), but rather its predictability and stability. This stability of the exchange rate is achieved precisely when inflation is low. Low inflation benefits the exchange rate far more effectively than any administrative measures.
Now, a few words on our forecast.
At the start of this year, you had many questions regarding the significant divergence between the forecasts of the Bank of Russia and the Ministry of Economic Development. Let me say right away that at present, there are no fundamental differences between our outlooks.
In our forecast, inflation is expected to move towards the 4% target next year. It may see a brief uptick early in the year due to tax increases, followed by a faster-than-average rise in utility tariffs. However, this does not alter the downward trajectory for the key rate. Crucially, the overall configuration of next year’s budget will be generally disinflationary. Let me stress that, in our view, a VAT hike is considerably less proinflationary than financing a deficit by increasing public debt. The Bank of Russia fully support the commitment of the Government and the State Duma to a balanced budget.
The next question you have also raised is whether the economy can grow faster than our forecast implies. Yes, it can, provided that scarce resources are channelled precisely to those companies and sectors where labour productivity is growing faster, and that the substantial investments being made yield a high return. Lending at low rates to low-profit or even loss-making firms is a road to nowhere. In a labour shortage, a supply-side economy is not about ‘output targets' but about efficiency and productivity; it is about reallocating our domestic resources to the most demanded and efficient sectors. In my view, any discussion about accelerating growth must start with these very issues: productivity, competition, monopoly oversight, labour mobility, human capital quality, and clear prioritisation of government spending. This, in my opinion, is the key to faster growth.
A challenging question often asked here is: how can we raise productivity when loans are so expensive and there are no funds for new machinery? Let me assure you, productivity is not just about machinery and far from always requires costly investment. It can also be boosted by using existing capacities more efficiently. We have seen numerous enterprises that multiplied their labour productivity by improving internal production processes. Certainly, machinery is needed too, but international experience and research show that long-term gains from changes in production organisation and efficiency controls account for 25–50% of real GDP growth. And, of course, a vital element we have also discussed is fostering competition.
One of the scenarios we consider in the Monetary Policy Guidelines is based on an acceleration in labour productivity.
We refer to it as the Disinflationary scenario, as the higher the return on investment and the faster the productivity growth, the more rapidly supply can meet demand. This would result in lower inflation and, in such an environment, allows us to reduce the key rate more swiftly.
However, we must also be prepared for adverse developments. Accordingly, the Monetary Policy Guidelines present two such scenarios.
The first is the Proinflationary scenario, which involves a combination of internal and external factors causing demand to outpace supply.
The Risk scenario illustrates the policy stance we would adopt should global trade wars escalate into a full-blown global crisis. We must be prepared for all contingencies.
Incidentally, Mr Zhukov raised the issue of a missing scenario: cutting the rate to 3–4% now, while inflation is still rather high, as some argue this would significantly boost economic growth. We will, as agreed, certainly prepare such an analysis – but, I am convinced, only to illustrate what the path to hyperinflation looks like. For most people in this hall, however, this is not an abstract notion: in the 1990s, we experienced it in full measure. You remember all too well what happened to economic growth and investment in the 1990s, and that there was no long-term ruble lending at that time. What we had then was a total dollarisation of the economy and the financial system; you remember the ‘conventional units’ in shops and so on. The monetary policy we are pursuing now, during this period of overheated demand and supply-demand imbalance, is designed precisely to prevent us from returning to that situation.
And now, a few concluding remarks.
Our path to low inflation has been long and winding. Could it have been shorter? Perhaps that is not for us to say. However, my colleagues and I strongly believe that this path is essential – for social stability, for financial stability, and for economic development.
For years now, inflation has consistently topped the list of issues that worry people the most. The majority of the population views high inflation as an unfair tax – a perception that is, of course, entirely correct. The burdens of this tax falls most heavily on the most vulnerable: those on low incomes.
A global inflation ranking places Russia in an unenviable position – in the second hundred. One need only look at our neighbours in this ranking, the countries with even higher inflation. Believe me, they are not known for their developmental successes. On the contrary, they tend to have profound economic and financial problems. And this is no coincidence.
The reason is that countries with low inflation are in a completely different league – one that offers vastly different opportunities, both economically and in terms of enhancing public welfare. That is why I am convinced that our consistent policy of reducing inflation is laying a solid foundation for sustainable economic growth. There is no contradiction here. Our aim is precisely to ensure that this growth translates into greater prosperity for our citizens. I very much count on the State Duma’s support in this endeavour.
Thank you so much for your attention.