Press conference of Bank of Russia Deputy Governor Alexey Zabotkin on draft Monetary Policy Guidelines for 2027–2029

Today, I am presenting the Monetary Policy Guidelines for the next three years. The Bank of Russia has released the first draft of its annual strategic document.

The goals and principles of our monetary policy remain unchanged. According to the Federal Law on the Central Bank, our main objective is protecting and maintaining the stability of the ruble as the national means of payment and store of value. Addressing this objective, the Bank of Russia ensures price stability, that is, low inflation. Price stability is critical not only for enhancing price predictability and preserving the purchasing power of incomes and savings, but also for fostering the conditions conducive to balanced and sustainable economic growth.

Since 2015, the Bank of Russia has been implementing its monetary policy within the inflation targeting framework. The target for inflation, measured as an annual increase in the consumer price index (CPI), is set at the level of 4%. The Bank of Russia successfully attained the target from 2017 to 2020. Since 2021, the Russian economy has been facing unprecedented shocks, which has complicated the path towards price stability. However, the complexity of the objective is no reason to tolerate high inflation that would both undermine confidence in the national currency and hinder the domestic economy’s balanced growth. The Bank of Russia is committed to ending this prolonged period of high inflation.

The main instruments of our monetary policy are the key rate and communication about the policy pursued. The Bank of Russia communicates its view of current economic developments, the rationale for its decisions, and the logic of its future moves. Households’ and businesses’ economic choices and behaviours, including with respect to spending and savings, borrowings, product pricing, output of goods and services, investment, etc., depend not only and not so much on current circumstances but also on their expectations regarding the future. Therefore, communication is just as vital to the success of monetary policy as the actual key rate path.

Monetary policy affects the economy and inflation through a number of channels; together, these are known as the monetary policy transmission mechanism. We traditionally describe it in Appendix 1 to the Guidelines.

The effect of this mechanism is time-lagged, and therefore, the Bank of Russia relies on a medium-term forecast in its monetary policy decisions. The regulator updates this forecast at its core meetings four times a year. The Guidelines present the baseline and three alternative scenarios, which I will elaborate on shortly.

I would like to emphasise that a floating exchange rate is essential for an open economy with substantial exports and imports as it enables the economy to respond to changes in the external environment more quickly and efficiently. Any interventions to weaken a managed exchange rate might accelerate inflation and reduce access to both consumer and investment goods for Russian households and enterprises. Consequently, this would drive up all costs and expenses in the economy, including those of the fiscal system. To the contrary, interventions aiming to significantly strengthen the national currency would persistently undermine Russian manufacturers’ competitiveness in both domestic and international markets, adversely affecting employment and pushing inflation well below the target. This is not a balanced state of the economy either.

With a floating exchange rate and monetary policy aimed at achieving the inflation target, the Bank of Russia is able to prevent any of these two extremes from persisting for a prolonged period (for many quarters or years). Overall, a floating exchange rate tends to adjust to a ratio which is consistent with low inflation and balanced growth, given the external environment. Of course, temporary exchange rate fluctuations are still possible in the event of severe external shocks.

The fiscal rule is a key mechanism that shields the Russian economy – and the exchange rate in particular – from crude price fluctuations. This year, the suspension of fiscal rule-based operations with the National Wealth Fund’s resources, coupled with sharp spikes in crude prices, exacerbated exchange rate volatility in the spring months and early summer. This vividly illustrates the importance of the fiscal rule as an ‘automatic stabiliser’.

Economic situation and baseline forecast

Inflation will significantly exceed its 4% target again in 2026.

Tight monetary policy in 2024 and 2025 restrained aggregate demand, ensuring a marked slowdown in price growth last year. As a result, production capacity, which continued to grow consistently, caught up with demand. Accordingly, the demand overheating of 2023–2024 was largely resolved in 2026 H1. This was evident in a gradual easing in the labour market, real wage growth converging towards labour productivity growth, and other indicators.

After the one-off effect associated with the VAT increase in January 2026 faded, the decline in underlying inflationary pressures resumed in the spring months. Current price growth, measured as a seasonally adjusted annualised rate, remained within the range of 4–5%. Annual inflation was below its 2025 levels, staying at its six-year low, even taking into account the one-off effect of higher VAT.

However, inflation sped up notably from June 2026, pushed up by new strong supply-side shocks, including a temporary reduction in production capacity in oil refining and logistics. Unfortunately, monetary policy cannot offset the direct effects of these circumstances on current prices. Nevertheless, monetary policy can and must mitigate second-round effects of that loss in potential.

Furthermore, in June, the Government announced that it would take more time to reduce the structural primary deficit and bring the federal budget back to balance. This means that the contribution of the public sector to aggregate demand will be larger in 2026–2028.

The Bank of Russia will make its decisions regarding the required degree of monetary tightness taking into account these factors.

Baseline scenario

Our baseline scenario, which we released earlier following July’s key rate meeting, assumes that the slump in oil refining is a transitory factor that will wane by the end of the year. In view of this, we have revised our GDP growth forecast for 2026 downwards by 0.5 pp to 0–1%. The forecast for the next few years remains unchanged at 1.5–2.5% per year.

The baseline scenario also assumes that the federal budget’s structural primary deficit will be more prolonged, decreasing steadily from 2% of GDP in 2026 to 1% of GDP in 2027, 0.5% of GDP in 2028, and zero from 2029 and onwards. We will update this assumption at our core meeting on the key rate to be held in October, taking into account the draft three-year federal budget that the Government is to submit to the State Duma for approval at the end of September.

The crude price, calculated for tax purposes, is projected at around $60 per barrel in 2026 and $50 per barrel in 2027 and further on. I would like to remind you that the assumption regarding the crude price does not have a notable impact on the macroeconomic forecast because of the effect of the fiscal rule and a sufficient amount of liquid assets at the National Wealth Fund to offset the reduction in oil and gas revenues.

The Bank of Russia’s baseline scenario assumes that bringing inflation back to 4% in 2027 will require the key rate to average 13.7–14% over the remainder of 2026 and 10.5–12.5% in 2027. The key rate will return to its neutral range of 7.5–8.5% in 2029.

Alternative scenarios

The assumptions underlying the three alternative scenarios are consistent with the logic of the previous Guidelines.

In the proinflationary scenario, the contribution of fiscal policy to aggregate demand will be persistently larger over the entire forecast horizon, just as last year. This pushes up the neutral interest rate estimate compared to the baseline scenario. In view of the events we have been observing in recent months, the reduction in potential caused by persistently high maintenance costs for production facilities also exacerbates this scenario. Due to more severe supply-side constraints, GDP growth will be more modest than in the baseline scenario. Consequently, we will need a tighter monetary policy stance to keep market demand in line with the reduced supply. To ensure price stability, the key rate must be higher than in the baseline scenario by 2.5 pp in 2027 and 3 pp in 2028.

The disinflationary scenario assumes better dynamics of productivity, including both labour productivity and total factor productivity. This can be interpreted as bigger actual investment returns than before, that is, higher value added per ruble invested. This may result from redistribution of resources towards more efficient firms and industries. Productivity growth may also be driven by more extensive deployment of advanced technologies, including artificial intelligence, than the baseline scenario assumes. A faster increase in potential output will provide more opportunities for demand expansion. Accordingly, inflation will decelerate more significantly, while the Bank of Russia will be able to ease its monetary policy faster than in the baseline scenario.

The risk scenario is, as always, a hypothetical illustration of economic developments in the event of a global economic crisis comparable in scale and nature to that of 2007–2008, and of the monetary policy stance that will be needed to prevent inflation from running amok in crisis conditions. This scenario should not be read as anything the Bank of Russia expects for 2027. The purpose of the risk scenario is to show what monetary policy decisions the Bank of Russia will make in such circumstances.

Fiscal policy

This is an important component of our forecast. Fiscal policy is not only about the federal budget’s deficit or structural primary deficit but also about the overall composition of revenues, expenditures, and sources of financing the fiscal system, as well as government subsidised financing programmes for households and businesses. In other words, we take into account everything that affects aggregate demand but is not responsive to the key rate. Since monetary policy acts with a time lag, an essential condition for its effectiveness is that the part of aggregate demand beyond the influence of monetary policy – government demand – is planned in advance.

Just as last year, these Guidelines include Box 4 detailing the interplay between monetary policy and fiscal policy. The box describes how the two policies complement each other and help address priority objectives for society, while maintaining balanced economic development and price stability.

Conclusion

The Guidelines demonstrate how the Bank of Russia will ensure price stability through its monetary policy under different scenarios, returning inflation to its target and preserving the purchasing power of the ruble.

Low inflation is critical to maintain the affordability of long-term market-based financing. It is also necessary for households to build up ruble savings at moderate interest rates. This is even more important today, given that we can no longer rely on foreign financing.

The Bank of Russia will do everything in its power to ensure financial and price stability, strengthen confidence in the ruble and the domestic financial system among people and businesses, and thus establish a solid basis for successful development of the Russian economy.