Russia’s central bank will proceed with caution when lowering its key interest rate, according to Governor Elvira Nabiullina. Her comments on Thursday followed the government’s announcement of plans to raise value-added tax (VAT) starting next year. Nabiullina emphasised the need for careful calibration at each step.
Speaking to the economic outlook, Nabiullina cautioned that easing monetary conditions too rapidly could reignite inflation. While generally supportive of the draft budget, which she described as ‘disinflationary’, Nabiullina acknowledged a potential one-off increase in inflation when the VAT increase takes effect. However, she downplayed the sustainability and overall significance of this effect.
“Even if such an effect occurs, it would be a temporary, one-time effect,” Nabiullina stated, referring to the planned tax increase. She added that, unlike deficit growth through borrowing, the VAT increase is unlikely to create sustained inflationary pressure. Nabiullina also expressed support for the government’s proposal to lower the cut-off price for oil, which determines how oil revenues are allocated to the fiscal reserve fund.
On September 12, the central bank reduced its key interest rate by one percentage point to 17%. The bank anticipates the average key interest rate to range between 12% and 13% in 2026, with inflation expected to return to its 4% target from the current level of approximately 8%.
