Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 24 July 2026
Good afternoon. 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 4.0–5.0%. 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. This has expectedly translated into inflation expectations surging in July. Petrol is a salient item accounting for a significant portion in households’ regular purchases and companies’ costs.
As the situation in the fuel market stabilises, inflation expectations are likely to go down. They demonstrated similar dynamics in response to 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 2026 2H.
Given the realised rise in fuel prices and the subsequent increase in prices for other goods, we have revised our inflation forecast for this year upwards to 6.0–7.0%. After the effects of transitory factors wane and as a result of the monetary policy pursued, inflation will return to 4% in 2027 and stabilise at the target further on.
Secondly, the economy.
As we expected, GDP demonstrated positive dynamics in 2026 H1. After its decline in 2026 Q1, which was associated with calendar and weather effects, economic activity expanded moderately in 2026 Q2. 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 1.0%, according to our estimate. The forecast for the next few years has remained unchanged.
A gradual easing in the labour market will contribute to a slowdown in price growth. According to the Bank of Russia’s regional branches, companies report an increase in staffing levels, primarily where labour mobility is higher.
Thirdly, we assess monetary conditions as moderately tight.
Money market rates and federal government bond yields have risen. However, taking higher inflation expectations into account, the tightness of monetary conditions in real terms has decreased somewhat.
Households’ 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 decelerated 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 2026 Q2.
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 consideration 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 geopolitical developments. 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 smooths the impact of its fluctuations on the economy.
The balance of foreign trade in 2026 Q2 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, proinflationary risks prevail over the forecast horizon, according to our estimate. As before, they include a slower-than-expected easing in the labour market. Budget parameters remain a major factor of uncertainty, as I have already said. We expect the 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 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
Thank you for your attention.