Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 6 June 2025
Good afternoon. Today, we have made the decision to cut the key rate to 20% per annum.
The high key rate has led to a substantial deceleration in inflation. Price growth is still largely uneven across groups of goods and services, but now we are more confident that disinflationary processes have become sustainable. The dynamics of inflation and economic activity give us the sufficient ground to cut the key rate. However, we are going to maintain tight monetary conditions for a long time. This is necessary for a sustained return of inflation to the target.
I would now dwell on the reasons behind our today’s decision.
Firstly, inflation continues to slow down.
In March, the current price growth rate was 7% in annualised terms, and in April, it decreased to about 6%. The main contributor has been the high key rate. Nevertheless, its impact is still uneven across different segments.
Tight monetary policy has had the strongest effect on the group of non-food goods where price growth rates are rather low overall. We can clearly see that the key rate has been transmitting to this segment through the interest rate and the exchange rate channels. High interest rates have become one of the major drivers of the ruble strengthening. Coupled with the cooldown in demand, this has additionally affected price dynamics in the non-food group. As a result, many goods in the segment of household appliances and electronics, like smartphones, TV sets, and vacuum cleaners, have shown little change in prices or have even fallen in prices over the past year.
Current growth rates of food prices have declined overall, albeit less notably than those of non-food prices. The dynamics of food prices were also diverse. Thus, prices for certain products, such as milk and eggs, have stopped to go up or even started dropping, following their spikes over the previous periods. Prices for greenhouse vegetables are declining abnormally fast for this season. Contrastingly, price pressures in the group of meat products have been intensifying.
Growth rates of prices for services remain high as demand in this sector is affected by the dynamics of households’ incomes more than by lending dynamics. Given persistent income growth, the demand for services is increasing faster than that for goods.
Inflation expectations are still high. Nevertheless, businesses’ price expectations have been lowering sustainably since the beginning of the year, so, in general, we can state that a downward trend here has formed. As for households’ inflation expectations, there is no consistent direction here — they are fluctuating in the range of
Elevated inflation expectations are one of the key factors requiring us to be cautious in taking decisions.
Secondly, the economy.
Domestic demand, albeit still high, is nevertheless shifting to more moderate growth rates. High-frequency data for April and May indicate that the rise in household consumption and investment activity continued to decelerate smoothly.
According to our monitoring of businesses, demand will be expanding more slowly overall than last year. That said, economic activity, like inflation, is characterised by high heterogeneity. The structural transformation of the Russian economy inevitably leads to a situation where demand will be rising at elevated rates in some sectors, while falling in others, especially after overheating in some segments, like in construction.
As for the labour market, there are now more signs of an easing. According to our surveys, the percentage of companies experiencing labour shortages has been declining. The number of vacancies and wage offers in the most overheated segments, such as IT, has been trending downwards. In addition, the number of industrial enterprises reporting to be fully staffed has gone up as well as that of enterprises that have reduced the number of work shifts. What is important to us is whether these cases will influence overall labour market tightness and the dynamics of the wage-to-productivity ratio.
Thirdly, monetary conditions remain tight.
Yield curves in the government bond market and the money market have shifted downwards since our meeting in April. Overall, interest rates on loans and deposits have edged down since the previous meeting. The spreads between loan rates and the key rate have narrowed, although they are still elevated due to banks taking a more conservative approach to risk assessment.
Nominal rates have been declining, but real interest rates should be taken into account as well. Considering the inflation slowdown and some decrease in inflation expectations, real interest rates are still high, while monetary conditions remain tight overall. Today’s key rate cut, taking into account the inflation deceleration, does not imply a significant easing of monetary conditions in real terms.
In this environment, credit activity remains modest. The cooldown has been mostly observed in the segment of unsecured consumer lending, while mortgage lending saw a slight increase. I would like to note that activity in the housing sector should not be assessed solely based on mortgage lending. We see that the percentage of homes bought by people using their own funds has been growing, and sales in square meters were relatively stable over the past 10 months. As for corporate lending, it expanded slightly over the previous two months.
However, considering very modest growth rates of the portfolio in early 2025, total lending to the economy is still closer to the lower bound of our forecast. Money supply growth is also in line with our forecast. The saving ratio remains high.
As regards external conditions.
The foreign trade surplus edged down in March—April due to falling prices for core Russian exports, that is, crude oil, certain metals, and coal. Imports dynamics are still moderate, which is mostly the result of tight monetary policy.
Tight monetary conditions have also resulted in sustainably high demand for ruble assets. The difference between interest rates in rubles and other currencies is now at its all-time highs. This means that it is more profitable for both companies and households to make savings in rubles than accumulate assets and savings in foreign currency. Coupled with the fiscal rule, this ensures a stable balance between demand and supply in the domestic foreign currency market, even despite declining oil prices.
Now, I would like to speak about risks to the baseline scenario.
Some proinflationary risks have decreased since our previous meeting, e.g. the risk of the Russian economy deviating upwards from a balanced growth path for a longer period.
Nevertheless, proinflationary risks still prevail. First of all, we are concerned about the persistence of high inflation expectations among households despite disinflation and a stronger ruble. Moreover, risks associated with the labour market are rather pronounced. The situation here may remain tense for a long period, hindering the return of inflation to the target. Finally, there are risks related to the dynamics of global prices for Russian exports.
Disinflationary risks include a much faster cooldown in lending and demand than we are currently observing.
An important factor affecting our decision-making is fiscal policy. If the budget impact is less disinflationary than assumed in the announced plans, we will need to adjust the key rate path.
Furthermore, there are still risks associated with geopolitical developments, which are predictably unpredictable.
To wind up, a few words about our future decisions.
I would like to remind you that the key rate of 21% was set in late October. It will take no less than three quarters for its effect to fully translate into the economy and inflation. This means that, adjusted for inertia and time lags, our previous decisions will continue to ensure disinflation. In the environment where the balance of risks remains shifted towards proinflationary ones, our approach to cutting the key rate requires a lot of caution. This suggests that there might be pauses between steps. Moreover, if inflation stops decreasing sustainably or even starts accelerating, the key rate may be raised. We need to maintain tight monetary conditions to ensure further disinflation. This is possible even when we cut the key rate, provided that inflation and inflation expectations are also declining. Our future decisions will be aimed at achieving the inflation target of close to 4% in 2026.
Thank you for your attention.
Q&A FOR THE MEDIA
QUESTION from TASS:
I have a regular question: what options were considered for the key rate today? And which signal options were discussed for the market?
Elvira NABIULLINA:
Today, we considered two options: some proposed keeping the rate unchanged, and others suggested a rate cut.
Importantly, many who advocated maintaining the rate held open the option of a cut at the next meeting in July. There were also debates over the size of reduction – half a percentage point, or a full point. Ultimately, the Board of Directors decided that there was sufficient evidence to justify lowering the rate to 20%. A more substantial move was not considered.
Regarding the potential for further cuts, the Board’s assumptions were overall based on the key rate path as of the end of 2025, according to April’s forecast. In this sense, today’s decision should be seen as consistent with that projected path.
QUESTION from Interfax:
You say that you are committed to a cautious approach. Does this mean a July rate cut is not guaranteed? Isn’t there a contradiction in your communication: in April, your signal was neutral, but today you cut the rate.
Elvira NABIULLINA:
First, a neutral signal implies both the possibility of a rate increase and decrease; this is what a neutral signal is. There is no inconsistency here.
As for future steps, nothing is predetermined. Our decision will depend on how the situation develops and the data we have by the next meeting.
QUESTION from RIA Novosti:
Today’s statement skips the 2025 inflation forecast. Can we say that this forecast is due for revision? Will that be an upward revision?
Elvira NABIULLINA:
Inflation is close to the lower bound of our forecast. A more precise estimate is due in July when we update the forecast. However, based on data from the first four months and this month’s trends, there is likely to be a downward revision.
I cannot say for now how significant it will be. By July, we will have a lot of data to make an informed decision on the forecast.
QUESTION from Sib.fm, Novosibirsk:
Critics from the left wing of the State Duma argue that the Central Bank’s policies are hindering growth of the real economy, and this is a top issue for everyone, including the President. They claim that the regulator both fails to slow inflation and provide affordable credit to the economy. Which goal takes precedence: slowing inflation or supporting the real sector, or can both be achieved simultaneously?
Elvira NABIULLINA:
I am convinced that the real obstacle to economic growth is high inflation. Rising prices mean companies have to pay more for materials, equipment and wages.
With high inflation, low borrowing costs are impossible: even if the key rate is cut, market rates remain high. Inflation also destabilises the national currency. Businesses struggle to make long-term plans.
Ultimately, inflation erodes economic potential. This is why our goals are to slow inflation and enable growth of the real sector. These two objectives do not contradict each other. They are complementary.
QUESTION from Shlygin Pro project:
Can the key rate be cut proactively ahead of current inflation and inflation expectations? Or perhaps this is impossible, and you should always wait for these indicators to decline first?
Elvira NABIULLINA:
Indeed, we need to be confident that inflation is on a sustained downward path before we lower the rate. Today, the Board noted greater certainty in this trend.
That said, we do not have to wait for inflation to drop to 4% before lowering the rate. Our decisions are guided by forward-looking assessments for inflation and forecasts for economic development in the near term, not just current data.
But let me reiterate, before making a decision, we need to be confident that inflation is on a sustained downward path – moving towards our 4% target.
QUESTION from RBC:
Ahead of the June meeting, analysts and government officials voiced their expectations for a rate cut. Did the Bank of Russia factor these growing expectations into its decision?
Elvira NABIULLINA:
We certainly consider expert and analyst views, including macro surveys we conduct before the quiet period, and listen to government input. However, as mandated by law, our decisions are independent. They are grounded in our own analysis, forecasts and risk assessments. This meeting was no exception.
QUESTION from Economikal Telegram channel:
My subscribers ask why the Central Bank’s policy is so rate-centric. They wonder if there is a ‘magic wand’ alternative, such as quantitative tightening or higher reserve requirements for commercial banks to beat inflation. I would like to expand on their question: why is the Central Bank’s monetary policy so focused on the interest rate, and why aren’t tools like quantitative tightening or raising reserve requirements for commercial banks used more actively?
Elvira NABIULLINA:
Indeed, this is a very important question. It is about what the most efficient tool is to influence inflation by shaping monetary conditions and the growth of monetary aggregates, and through them, aggregate demand.
We have several considerations. One, the key rate, combined with expectations about its future path, which we seek to influence through our communication, shapes the rates in the economy that determine consumer behaviour: borrowing, investing and saving.
Our rate policy affects both credit and savings channels. This is the fundamental advantage of the key rate over regulatory measures that affect lending through tightening or easing of bank capital requirements but have almost no effect on households’ saving behaviour.
Two, when we change the key rate, we essentially influence only one parameter – the price of short-term money in the economy. Our communication does influence expectations for long-term loan rates, as I have said, but all other parameters, including loans of different maturities for different borrowers, are all shaped under the influence of market forces.
This is why our monetary policy does not replace the financial market, helping the market shape conditions for all other lending parameters. Actually, the fact that they are determined by the market is very important for savings to be transformed into investment in the most effective way.
Some suggest administratively limiting the amount of loans through regulatory measures (and regulatory measures are still administrative measures). Rather than raising the key rate, this would limit money supply and deliver the same result with the key rate unchanged. That is, we would slow credit expansion while leaving the key rate unchanged. But this is an illusory idea. Once quantitative restrictions are introduced amid high demand for low-interest credit, the market rates will rise regardless.
Let us take a look at some countries with similar inflation but a much lower policy rate. The market rates there are approximately the same as ours. At the same time, you may lose the ability to steer the market rates.
One more thing: we cannot change regulatory requirements very often, even monthly. No bank is able to build a business model when regulatory requirements change too often. It will just stop lending, and credit will become as unaffordable.
But you mention two methods, quantitative tightening and tightened reserve requirements. Let me emphasise that quantitative tightening is applied as a response to quantitative easing. Quantitative easing was applied in low-inflation countries having limited room to cut their policy rates. The intention was not to push the rate into negative territory because of the adverse effects this involves.
The required reserve ratio is a tool that some countries really used in the 1970—1980s under the monetary targeting regime. It is free of the drawbacks I have mentioned, such as those caused by administrative limits on credit supply, including through banking regulation rules. But it can only deliver if the central bank stops stabilising short-term rates with its operations. This would make short-term rates very volatile, bringing adverse effects on the efficiency of financial markets.
Most central banks with a history of using the tool over several decades have by now abandoned it. They believe that the most effective tool to target inflation is management of short-term interest rates.
QUESTION from GorodChe, Cherepovets:
From 1 July, utility rates will rise 11.9% on average, faster than last year (9.8%). Households will have to pay more for utility services than in 2024. Business costs will also increase, and so will inflation. Could this cause further monetary tightening?
Elvira NABIULLINA:
Utility rate increases are indeed running ahead of inflation, and this is our concern inasmuch as this sets inflation expectations on course for expansion.
But the plans for the indexation were announced in advance and a long time ago, and both our decisions and the forecast have factored them in.
We do expect that July (when the increase is due) may bring a one-off acceleration in utility prices and headline inflation, but monthly price growth will slow moving forward.
Such one-off fluctuations do not normally require any monetary policy response. However, as I have said, people are seeing a surge in utility prices and associate it with a wider range of product prices. This is reflected in their future decisions, sending inflation expectations higher.
This year’s higher indexation may be one reason why household inflation expectations are robust to the slowdown in inflation.
Business price expectations are going down, and household inflation expectations are volatile, but they still are elevated overall.
QUESTION from Russia 24:
Some experts propose introducing preferential lending rates for some industries and individual large projects that need incentives. Such target loans would come with much lower interest than the general level set by the key rate. Please give us your take on the idea.
Elvira NABIULLINA:
As you know, the Government has implemented its economic policy including through a programme of preferential lending rates, that is by supporting priority areas with rate subsidies. Such preferential rates are below market rates for ultimate borrowers.
These programmes have expanded in scope: in 2024, banks issued subsidised loans worth a little over ₽6 trillion, including mortgage loans. This can be compared to ₽3.8 trillion in large-scale loans related to the Covid response in 2020. That is, there are many more such loans now.
But caution is vital. Indeed, subsidised loans must cover some top priority areas. Why is that? This is because mass subsidised loans would force the Central Bank to keep rates higher for other borrowers to prevent inflation accelerating. That is, borrowers receiving loans at higher, market rates end up paying for these subsidies.
As a general conclusion, it is steadily low inflation that makes loans affordable to a wide range of industries and businesses, and low inflation brings affordable loans at moderate rates.
QUESTION from Dengi Ne Spyat channel:
Could you comment on the current strengthening of the ruble? What are the factors behind it: liquidity inflows driven by demand for rubles needed to pay dividends, or is it attributed to the fiscal rule encouraging foreign currency sales and demand for rubles? What is the magnitude of appreciation, and is this trend sustainable? May some volatility emerge by the end of the year?
Elvira NABIULLINA:
We are now more confident in exchange rate stability than in April. Most of the ruble appreciation is accounted for by the effects of the tight monetary policy. That is the underlying factor. The short-term drivers including dividend calendars may play a role but do not define the trend.
The exchange rate can be viewed as an independent inflation factor irrespective of monetary policy tightness if its movements are caused by a change in external conditions, for instance export fluctuations.
But a stronger ruble is this year driven by high rates, and by tight monetary policy. We were less confident in this trend between February and April, but the past two months have given us more evidence.
In other words, the strengthening of the ruble, in its policy-driven part, is a channel through which our policy rate impacts demand and inflation, rather than another separate factor. This is how we see this.
QUESTION from Moskovsky Komsomolets:
Further to the exchange rate, by June, the dollar dropped to ₽79. The ruble has been strengthening since the beginning of the year. Some experts suggest that authorities might have to take action to weaken the ruble to fill budget coffers. What is your opinion about such comments? Are you in discussions with the Ministry of Finance about the exchange rate? If you are, how is it being categorised and what kind of language is being used? Is it reduction, strengthening and so on?
Elvira NABIULLINA:
First and foremost, the Bank of Russia and the Ministry of Finance are not discussing any target exchange rates because our exchange rate regime is floating. It is a floating exchange rate that enables independent monetary policy, acting as a ‘built-in stabiliser’ for the economy.
Therefore, we consider that the ruble exchange rate can only be considered as an indicator in the macroeconomic forecast rather than a target variable.
It is not determined by budget needs, but by the ratio of foreign currency demand and supply in the domestic market. This is how a floating exchange rate works. It may be affected by external conditions, prices, demand for our core exports, and geopolitical developments. Also, it is influenced by macroeconomic policy.
This is what we are seeing now, although this influence is not linear and does not aim to set the exchange rate at a certain level. Our tight monetary policy is intended to slow inflation, and it also affects the ruble exchange rate. The policy we intend to pursue is to bring inflation back to the 4% target. Accordingly, the exchange rate path will be consistent with this forecast.
QUESTION (Investitsii (Investments) Telegram channel, Yaroslavl):
The first part of my question is also about the ruble’s strengthening. The investor community believes that one of the drivers for the recent strengthening is the inflow of foreign capital on the back of high returns. Is this indeed a factor, or is the demand supported solely by domestic players?
And the second part of the question: the latest summary of key rate discussion says that the risks of trade war escalation are on the rise. What action would the Bank of Russia take if these risks have an impact on exports and inflation?
Elvira NABIULLINA:
Let me stress again that the strengthening of the ruble is mostly due to tight monetary policy.
Foreign investment is still held back by sanctions and retaliatory restrictions, despite a record high rate differential, that is the difference between ruble rates and those in other currencies. That means that we are not only and not so much talking here about investment of foreign companies, but that savings in rubles are increasingly profitable for Russian companies and households than assets and savings in foreign currency. This factor combines with the fiscal rule to stabilise the balance of foreign currency demand and supply.
While we have seen a rise in friendly non-residents’ operations in the Russian market, this rise was, firstly, insignificant, and secondly, their share of total transactions is extremely small. This explains why this factor has no meaningful impact on the exchange rate.
Were trade wars to intensify and hit our exports, we would make the rate decisions needed to prevent a new surge of inflation.
Alexey ZABOTKIN:
External export restrictions work on a sustained basis, essentially eating into potential GDP, the level of demand the economy can afford without accelerated inflation.
We will need to take this into account when choosing a key rate path that would ensure target inflation, as Ms Nabiullina has said.
QUESTION from Market Power project:
Does the Bank of Russia have an estimate for how much growth in household wages, all other things being equal, contributes most to 4% inflation?
Elvira NABIULLINA:
Numerical estimates are unfit here. The wage growth that aligns to a rise in labour productivity will not be a driver of inflation. This is a crucial point. If wages grow faster than labour productivity, future inflation is sure to undermine their growth. This may take some time to happen, but eventually it will happen.
QUESTION from Izvestia:
Can you please explain why household inflation expectations remain high and what can change this? How are household expectations affected by rising food prices? What is the way to contain their growth at this juncture given the start of a monetary easing cycle?
Elvira NABIULLINA:
True, I have spoken on this and I confirm that we are concerned that household inflation expectations are still high and almost unchanged despite the decline in inflation. This can be explained by the fact that household inflation expectations are shaped by changes in actual prices for goods that people most frequently buy. Smartphones or television sets are not the types of goods bought every day. As discussed, such products are either increasing in price slowly or becoming cheaper. But food is bought every day.
If food prices rise at a faster pace, they certainly shape high inflation expectations, and indeed food prices are now rising faster than inflation. This is also the result of high inflation. This is no coincidence. The lower inflation is (and experience shows that), the smaller the variance in price growth across product groups. This variance is currently about 20 percentage points, if remember correctly, but it was much less.
Therefore, this variance is set to fall as headline inflation declines. Prices for basic goods, food and essential services consumed almost every day, are set to grow less, and more slowly.
QUESTION from InvestFuture project:
You have mentioned that the impact of the key rate comes with a three-quarter lag. Minister Reshetnikov sees the risk of an overcooling economy, and some economists note a recession in non-defence industries. You say that economic growth is balanced. Nevertheless, do your estimates suggest we are close to stagflation and recession, and [if yes] how close?
Elvira NABIULLINA:
No, we are close to a scenario of balanced economic growth.
Speaking of the overcooling risks, we would have seen signs of them. The risk of an overheating economy can be seen in high inflation, rising inflation and labour market shortages – after all available labour resources have been used. On these measures, there is no evidence of an overcooling economy. We still have above-target inflation and unemployment is at a multi-year low.
Our task is to make sure that the path of growth deceleration (let me emphasise once again: of growth) is smooth and enables a transition to steadily low inflation and economic growth at sustainable rates.
QUESTION from Rossiyskaya Gazeta:
Could you please explain why migration policy has never been a component in the balance of risks? Clearly, migration regulation is not part of the Bank of Russia’s mandate, but labour resources have a strong impact on the economy and the factors for the Bank of Russia to consider in monetary policy. Do you have a position on this issue?
Elvira NABIULLINA:
We do consider the labour market, and it is an important indicator. There are risks related to the labour market. But this risk is part of comprehensive analysis, that is, we do not single it out and we do not make forecasts for migration policy. However, we certainly take the factor of migration policy into account on the understanding that a degree of flexibility in the labour market is needed to attract the labour force.
Alexey ZABOTKIN:
Certainly, the higher flexibility of the labour market and the more elastic labour supply (which implies, among other things, a freer movement of resources, including freer domestic migration) we have, the fewer inflation fluctuations driven by changes in aggregate demand there are, and this is also an important factor.
QUESTION from Yurgan TV channel, Syktyvkar:
Following the Central Bank’s latest rate decision, banks are now reducing deposit rates. For many people living in the northern regions, including the Komi Republic, deposits are one of the few simple ways to save money given high inflation. Overall statistics show that Komi residents are increasing their deposits. Can a further reduction of deposit rates push households towards higher-risk forms of saving, for example foreign currency or non-bank assets? Is the Bank of Russia planning any additional measures to protect returns on deposits?
Elvira NABIULLINA:
Your question is, by the way, a reminder that a high [key] rate is not only about loans, but also about deposits. A high rate protects savings. Inflation deceleration is the core measure supporting real returns on deposits.
Currently, real rates on real ruble deposits – adjusted for expected inflation – are high. A one-year deposit can come with
We will cut the key rate only as inflation slows further. This means that rates on ruble deposits will remain above inflation.
Therefore, we do not expect a large-scale outflow of deposits to the consumer and stock markets or to foreign currency. For example, returns on foreign currency deposits are much lower than ruble deposits. Foreign currency deposits are also exposed to foreign currency risk, unlike ruble deposits. A ruble deposit within the insured amount is essentially a risk-free product.
A certain outflow to stock market instruments is normal. When people transfer their money to the securities market, it is imperative to ensure they understand that they are dealing with a higher level of risk and see the instrument that fits them best. For example, the most conservative investors looking to invest in the stock market will turn to a long-term savings programme. It is in fact closer to savings than to investments.
QUESTION from NTV’s Delovye Novosti:
Speaking at the Alfa Summit a couple of weeks ago, you said that you like opera and classical music. In your opinion, which piece best reflects inflation in Russia today? Perhaps Patriotic Song, or Ode to Joy, or Tosca, or even Requiem? And which is the prevailing key: minor or is it already major?
Elvira NABIULLINA:
Beethoven’s Ninth Symphony.
QUESTION from Kommersant:
In discussing today’s move, the market is likely to be divided in two. Some may say that half a percent would have been enough for economic regulation, and some will say that everything is fine. How much of policy and how much of economic considerations is there in this this big move? People will say that the Central Bank was under pressure, that if it had been a purely economic decision, the change would be half a percent. On the contrary, others may say a political decision would mean that half a percent would have been enough, but a whole percentage point is about the economy as well. Perhaps Mr Zabotkin can also take this question. What would you say to both sides?
Elvira NABIULLINA:
As cliché as it may sound, we make decisions based on our own analysis and risk assessments. Indeed, some say that the key rate has to be reduced faster, and others are concerned about deposit rates. When you say ‘under pressure’, you probably mean expert opinions about the right key rate. We do not see this as pressure.
Incidentally, these experts come up with much lower levels of the key rate than today’s decision. That is, had the Bank of Russia yielded to pressure, the rate would have been much lower. This would stall progress in inflation slowdown and would have propelled it to accelerate, but this is not the case, as you can see.
Alexey ZABOTKIN:
It is surprising to hear a question formulated in that way: such considerations never arise in Board discussions.
QUESTION from Law and Finance project:
Considering that most of the disinflation is thanks to non-food goods, which instruments is the Bank of Russia ready to use should imports, because of a weaker ruble, rapidly bring inflation into this segment? What are the odds of a rate increase, or is the current level sufficient to contain price growth?
Elvira NABIULLINA:
I have said it before and will say it again: we believe that exchange rate movements are largely a consequence of our tight monetary policy. We do not expect that we will have to raise the key rate in response to a sudden significant weakening of the ruble against a backdrop of tight monetary policy.
However, there other factors at play, external, geopolitical and others, impacting the exchange rate: we will take them into account, but we believe that the current tight monetary conditions are sufficient for inflation to steadily decelerate to 4% by the end of next year.
QUESTION from Vedomosti:
Recently, your Financial Stability Review said that major companies are reporting a worsening of financial performance. Could you specify the industries these companies are from? Was that a consideration for today’s key rate decision? If we are talking of exporters, what is their current financial standing given the strengthening of the ruble?
Elvira NABIULLINA:
Speaking of the financial standing of companies in various industries, we are certainly monitoring this. I have mentioned the surveys we conduct; we also analyse financial statement data. The available information is presented in the Financial Stability Review.
However, we do not see financial stability risks or that real sector businesses are at risk of deteriorating systemic stability. This was not a separate factor behind today’s decision given that companies overall report stable financial standing.
Recent data show the profits have moderated, but are still historically high in most industries.
Importantly, the situation is very uneven, and I have spoken about this. All this is occurring over the background of structural changes in the economy. We are seeing growing demand for some domestically made products, and that for others is growing less rapidly and may be on course for decline after overheating.
Some sectors are also influenced by external demand, as you have mentioned with regard to exporters. We can see that the coal industry is confronted with some challenges, although things vary from company to company. Incidentally, the situation differs everywhere, and there should be a comprehensive assessment. Even considering the more moderate increase in profits and despite some companies having to deal with external restrictions or a large debt burden, the situation is generally stable, and major companies are stable overall. There are probably a few more problems in small and micro businesses.
QUESTION from Expert:
At a press conference in April, you said that instalment schemes should not be prohibited. There is no harm in overprotecting Russians from the imposition of such products.
The Financial Stability Review of May highlights an alarming trend: from 31 March 2024 to 31 March 2025, microfinance organisations increased consumer portfolios 47% to almost 4% of total unsecured loans. The Central Bank links this trend to the growing popularity of instalment deals. They are offered by most common marketplaces now, and their scoring is looser than banks’. They sometimes do without scoring. Some of these instalment schemes amount to full-fledged loans. Does the Bank of Russia see any risks of overindebtedness of households? Is the limit of ₽50,000, to be envisioned in the instalment scheme law, appropriate?
Elvira NABIULLINA:
You are right: instalments offered by microfinance organisations at marketplaces are essentially loans. But I would like to stress that they are subject to almost all overindebtedness limits, just as other loans. The calculation of the debt service-to-income is mandatory. There are limits on loans to overindebted borrowers.
Scoring may indeed be less stringent, but assessments are still mandated. Loans cannot be issued blindly, and borrowers have a number of important guarantees.
Therefore, we see no serious risk originating from instalment deals offered by banks or microfinance organisations. Incidentally, the process involves a transfer of data to credit history bureaus. Microfinance organisations submit data on all loan amounts, even ₽1,000.
The ₽50,000 limit you mention is intended for instalment plans that are not issued through a bank or a microfinance organisation, but through so-called BNPL operators, which are now unregulated. They will be obliged to submit data to credit history bureaus on instalment deals of over ₽50,000, and almost nothing will change for instalment deals of up to ₽50,000.
Why 50,000? This compromise figure was agreed after a long discussion. In fact, this amount is equivalent to the size of a loan issued without a cooling-off period. That is, people have the right to a cooling-off period if the loan exceeds ₽50,000.
The instalment law on is now being prepared for a second reading. We expect the Duma to pass it before the end of the spring session. I fully agree that this market needs to be regulated. This market needs legal certainty and transparency, and the amount is a certain compromise.
QUESTION from Anna_finance project:
Ms Nabiullina, you have mentioned that price growth varies across product groups. While inflation slowed to 6% in April year-on-year, inflation for poor Russians was above 20% in the same month, according to the Centre for Macroeconomic Analysis and Forecasting. Considering that monetary policy is tight but works with an average lag of three quarters, is it possible to somehow calculate how quickly inflation will decline in the categories that make up the largest share of spending of financially vulnerable people, for example in food and transport services?
Elvira NABIULLINA:
People with low-incomes are indeed affected by high inflation most of all. The share of food in their spending is usually higher, and food prices have been recently rising faster than the overall CPI.
Low-income households are also suffering from high inflation, having no incomes from savings to offset inflation. Also, high inflation leads to very wide price differentials for certain goods including food.
As inflation declines, and this is happening, food prices will likely change gradually. This is why the only method available to the Bank of Russia to protect the most vulnerable households against inflation is to slow overall price growth in the country.
The lag of three quarters does not mean that key rate decisions take three quarters to transition their way into the economy. They start to transition immediately, but the full effect takes even longer than three quarters. There are already signs of headline inflation declining under the influence of the key rate.
Alexey ZABOTKIN:
Food prices are certainly a very volatile part of the consumer basket. Why is that? Food prices are strongly affected by harvests year-on-year, both in Russia and globally, given that the food market is global.
As you all know, last year’s harvest was rather modest in a number of cultures. This year, the picture is markedly better. Crops do not have to be record-breaking, but they have to be at least no worse than last year. This will ensure a more moderate pace of food price growth, after their significant growth. Accordingly, better crops should temper price rises.
QUESTION from Furydrops (weblog):
My question is about a fresh study published by the Bank of Russia’s Research and Forecasting Department. In it, the Bank of Russia seeks to understand which specific information significantly influences the dynamics of inflation expectations. The study finds that the only information significantly affecting agents’ inflation expectations relative to the control group is the growth rate of nominal money supply. The question is very simple. If the research results are robust, does the Bank of Russia have to change its focus in communication with the broader economy?
Now, my second question is slightly theoretical. It is recommended that tight monetary policy be maintained for a long time to anchor inflation expectations at a low level, and thereafter inflation will be steady, which will lower inflation expectations. Can we imagine that actual inflation has reached the target, but inflation expectations are still high? What happens in terms of the key rate path then? What action would the Central Bank take in this situation?
Elvira NABIULLINA:
Inflation expectations are really a key indicator for us. However, it is not only household expectations but also business expectations that are important; both are in decline and have significantly receded. It is impossible to single out one criterion for a key rate change. It depends on a set of factors.
As regards our communication and analysis, and the factors that drive inflation expectations, this is not only and not so much information about monetary aggregates, but primarily about actual changes in prices in stores.
While inflation expectations are to an extent influenced by our communication policy, the main factor affecting household inflation expectations is price trends in stores.
As for our communications, we should probably pay more attention to monetary aggregates, considering that low inflation is impossible if monetary aggregates rapidly expand – we have had the chance to see that.
The opposite is also important: slower growing money supply, which has been observed since the end of last year, precedes the deceleration of inflation. This topic is discussed in our monthly monetary conditions materials (these are intended mainly for analysts and experts). Since 2023, we have published high-frequency data on monetary aggregates. In other words, we have not skipped this topic in our communication, but we should probably pay more attention to it, so thank you for the reminder.
I suggest that Mr Zabotkin take the second question.
Alexey ZABOTKIN:
A slowdown in inflation cannot be steady if inflation expectations remain elevated. When inflation expectations are elevated, the policy may be tight or moderately tight, depending on how elevated they are.
Ultimately, the transition to neutral monetary policy consistent with a rate of
This does not mean that household inflation expectations as measured by inFOM in our survey will become 4%. They were not that low in 2017, 2018 and 2019, but at least they were 8%. Hence, their return to this range can probably signal that inflation expectations have returned to what is consistent with low inflation.
Understandably, inflation expectations relate to households and businesses. As the Governor has said today, firms’ price expectations are generally declining more significantly than those of households.
Elvira NABIULLINA:
Having said that, business price expectations are still higher than when inflation was at our target.
QUESTION from Frank Media:
Recent years were marked by rare exits from the banking market, and those exits were mainly voluntary. We enjoyed a quiet decade. Is the resolution mechanism you implemented in 2017 still relevant in today’s economic developments? Should a major market player need resolution, which would be the Bank of Russia’s preferred rescue strategy?
Elvira NABIULLINA:
We consider the banking sector stable, and do not see the risks you are talking about.
In my opinion, the resolution mechanism we proposed instead of the credit scheme, providing for immediate bank capitalisation, has stood the test of time. It is much more effective than the previous scheme. You are probably right that adjustments may be needed from time to time. However, we do not expect this scheme to apply intensely since the financial sector is stable.
As planned, we are phasing out the regulatory easing we provided. Banks have exited from most of the relief measures. They are doing quite well, and they are increasing lending and have sufficient capital reserves. This is of no particular concern.
QUESTION from Elakhovsky YouTube channel:
Which gauge of inflation would you recommend to the market? In recent months, the Bank of Russia has added a whole range of analytical indicators to its measures of underlying inflation: exchange rate-sensitive, insensitive, cyclical, non-cyclical, demand-pull and supply-driven. These indicators can be in poor alignment with each other, adding noise rather than clarity to the picture. I would like to ask the Governor and Deputy Governor: which indicators of those published or unpublished do you focus on, and which are your preferred indicators?
Elvira NABIULLINA:
Target inflation is the headline consumer price index. This is our crucial indicator. But we track various metrics to gauge underlying trends in terms of volatile and non-volatile components, goods and services and their structure. It is important to understand what processes are at play, and we have been using these metrics for quite some time.
Certainly, the key metric we are focusing on now is so-called current inflationary pressure. This is a seasonally adjusted three-month indicator, as monthly data can come with spikes. That is why we look at three-month consumer price growth in annual terms as well.
Alexey ZABOTKIN:
All these metrics included in our materials are informative. This is why they are presented there.
All of them are also included in the Boards’ materials. In terms of understanding the Board’s assessment of inflation trends, the best approach would be to look at the totality of these indicators and see where their ‘cloud’ is heading. Naturally, this allows various interpretations. That is why there is a debate within the analytical community, with differing views on what decisions will be made.
QUESTION from Bitkogan project:
You mention that inflation this year is at the lower bound of the forecast. What about economic growth and lending growth? Are these two indicators also expected to be at the lower bound?
Elvira NABIULLINA:
Yes, economic growth is likely to be close to the lower bound.
The same goes for lending growth – it is within our forecast range, but nearer the lower bound.
Alexey ZABOTKIN:
Money supply is currently in the middle of this year’s forecast range.
Elvira NABIULLINA:
This is for the reason that aggregate demand is not just about lending growth. Fiscal operations also have a major impact. We are more focused on monetary aggregates, and we urge you to do so, too.
QUESTION from PRO.FINANSY project:
My question concerns certain mortgage lending cases, which our subscribers told us about. They raise some concerns. Here is the issue: when banks issued mortgages for private home construction, borrowers had to select a developer from the bank’s approved list. These contracts did not include escrow accounts, meaning funds went directly to developers. Then, some developers went bankrupt. Naturally, legal proceedings are under way, but ultimately borrowers are left without their money or homes.
But this is not the whole story. If the house has not been built within the agreed timeframe, the bank increases the mortgage rate. The borrowers complained to the Central Bank, which advised the banks to not raise rates, but banks reserve the right to do so. Many families have lost a significant part of their budgets. The payments are nearly double in some cases.
So the question is: in such situations, can banks be compelled to not raise rates, given that the delay was beyond the borrowers’ control?
Elvira NABIULLINA:
Indeed, there are two issues here, and you have outlined them clearly.
Let me start with the second one, although it is unrelated to banks’ dealings with contractors. Under the rules of preferential mortgages, if a loan is provided for a self-build, the property must be completed within 12 months. Otherwise, the preferential rate reverts to a standard bank rate. Such are the terms of the preferential mortgage programme.
Around 30,000 borrowers failed to meet the
We did recommend that the banks support the borrowers if they seek restructuring, and such restructuring is underway in thousands of cases. This helps protect them against defaulting.
However, this is just a quick fix. The systemic solution is that the Finance Ministry has doubled the construction time for individual housing projects under the preferential mortgage scheme, from 12 to 24 months. The finance minister announced this in the State Duma a short while ago. This will allow borrowers to return to normal repayment terms.
The second issue concerns another group of borrowers. There are 5,000 such borrowers, by our estimates. They had to deal with contractors that received direct payments from banks in tranches. The contractors either went bankrupt or simply disappeared, leaving people without homes, but owing money to the banks.
In this case, too, we recommended that banks provide support by extending repayment timeframes, waiving penalties and even writing off part or all of the debt in some exceptional cases. Ultimately, it is up to the bank to decide, but they take our recommendations seriously.
What does this suggest? It shows how crucial escrow accounts are for protecting consumers. I remember how much debate there was when escrow accounts were introduced. Unfortunately, escrow only became mandatory for individual housing construction in March this year. Preferential mortgages can now only be issued via escrow accounts, and that is vital for safeguarding people’s money. Banks, in turn, will have to vet contractors more rigorously since they now assume the risk for unfinished projects and borrowers can simply reclaim their money from escrow accounts. So that is the systemic solution we have arrived at.
Thank you for your questions.