Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 19 December 2025

Good evening. Today, we have made the decision to cut the key rate to 16% per annum.

Inflation has been slowing down. In November, this deceleration was even slightly faster than we expected, which was associated not only with persistent, but also, to a great extent, one-off factors. That said, in the coming months, prices will be considerably affected by the VAT rise and the increase in administered prices. The resulting impact is yet to be estimated. We take all of the above factors into account when determining the pace and scale of the key rate reduction.

I would now dwell on the reasons behind our today’s decision.

Firstly, inflation.

Current price growth rates have been volatile in recent months. They were up in October but dropped in November. Goods with highly volatile prices, namely fruit and vegetables as well as petrol, have largely contributed to these dynamics. Petrol prices have stabilised, following their rapid growth, and have even edged down owing to the measures taken by the Government.

According to weekly data, annual inflation has already decreased below 6%. The full-year price growth in 2025 will be at the lowest level over the past five years.

Current growth rates of underlying inflation measures were also down to around 4% in annualised terms in November. However, it would be premature to draw conclusions about whether this deceleration is transitory or long-term based on one month’s data. On average, over October–November, current growth rates of most underlying inflation measures remained slightly above 4%.

In addition, inflation will temporarily accelerate in early 2026 due to the VAT increase. In December, certain companies have already started to adjust their prices considering this factor, although its main effect is yet to materialise. By contrast, some companies are seeking to sell out their stocks faster at the end of the year, ahead of the VAT rise, offering customers attractive prices, which might have a temporary disinflationary effect.

In January, prices will also be impacted by additional indexation of housing and utility tariffs and other administered prices. Given the updated indexation parameters, the influence of one-off factors on inflation might be more significant next year than we estimated in October.

The VAT increase affects a wide range of goods and services, and therefore may influence inflation expectations. In November–December, they were up both among households and, more notably, among businesses.

The rise in inflation expectations is a tangible factor, as they influence not only decisions on purchases, but also the attractiveness of interest rates. After all, when deciding to deposit money, take out a loan, or invest in a new project, people and companies, explicitly or implicitly, weigh the expected return against the expected price growth. This means that we have to consider this factor when making decisions on the key rate in order to maintain monetary policy as tight as necessary to bring inflation to the target.

Secondly, the economy.

The economy continues to return to a balanced growth path, which is evidenced by the decline in inflation. According to our estimates, it will cool from its overheated state in 2026 H1.

High-frequency data show that economic growth slightly sped up in 2025 Q4 as compared to the previous quarter, including in mining and quarrying and in manufacturing. Consumer activity growth remains strong, having accelerated following its smooth slowdown in 2025 H1. This trend is particularly pronounced in public catering and a number of other services, as well as in the non-food segment. In recent months, consumption growth has been additionally fuelled by the expansion in demand for cars in anticipation of the rise in the recycling fee.

The October–December business surveys show that companies are more optimistic about future demand for their products, as compared to the previous quarter. This is associated with the easing of monetary conditions that happened earlier. However, the dynamics remain highly uneven across industries.

Investment activity growth has been mostly decelerating, while also demonstrating mixed trends across sectors. Over the past year, there has been a slight decline, for example, in construction where investment levels were record high in the previous years, as well as in transport and certain mining and quarrying sectors. Nevertheless, the investment volume in the economy as a whole remains close to the three-year highs. In January–September 2025, fixed capital investments totalled over ₽26 trillion. In real terms, this amount is at a par with the one recorded over the same period last year.

As for the labour market, its tightness has been decreasing, albeit slowly. Surveys show that the percentage of enterprises experiencing labour shortages has been gradually declining. It is already notably below its peak levels observed last year. Companies are planning to raise wages more moderately in 2026. Certain industries have been registering growth in part-time employment, although it remains low in the economy as a whole.

Thirdly, monetary conditions.

They remain tight but have slightly eased overall, compared to October.

Amid decreasing loan rates, corporate lending continued growing rather quickly in October–November. Moreover, this growth is observed across a wide range of industries and companies. Mortgage and car lending also continue to expand, albeit less notably than corporate lending.

The acceleration in credit growth is a natural response to monetary policy easing. It is important that the Bank of Russia maintains monetary conditions as tight as necessary to ensure balanced growth of lending, compatible with sustainably low inflation. 

As we have already noted, deposit rates have stopped declining. They have even edged up for some maturities, as compared with early October, maintaining the attractiveness of ruble deposits. Concurrently, households are becoming increasingly more interested in other forms of savings, including investments in the securities. Saving activity stays at a historically high level overall.

Briefly about external conditions.

Prices for key Russian exports are running lower than forecast by the Bank of Russia. This is attributable to both deteriorating conditions in the global markets of certain commodities and the impact of sanctions.

Despite worsening external conditions, the ruble remains strong. The first factor is the effect of the fiscal rule. The second one is the influence of tight monetary policy, which supports modest imports growth, thus reducing demand for foreign currency. Owing to high interest rates, ruble assets remain more attractive than foreign ones. Furthermore, demand for foreign currency is contracting due to the measures ensuring import substitution and supporting domestic producers. These are structural factors whose impact materialises over a longer-term horizon. In the short run, the ruble exchange rate is affected by expectations regarding geopolitical developments.

The ruble appreciation that happened this year continues to produce a disinflationary effect, although it has already become weaker.

I will now speak of risks.

Proinflationary risks prevail over the next year’s horizon. Risks stemming from tight labour market, characterised by labour shortages, remain high. Another significant risk is the increase in inflation expectations, caused by the VAT rise and tariff indexation. Furthermore, there are risks related to external conditions, in particular oil prices. Finally, credit dynamics may also carry risks. If the expansion in lending, and accordingly, in money supply, is excessive, this might hinder the economy’s return to a balanced growth path and exert pressure on prices. Geopolitics is also a considerable source of uncertainty.

That said, we take into account disinflationary risks as well, particularly the risk of a substantial slowdown in domestic demand growth.

Finally, regarding our future decisions.

The scale and pace of further monetary policy easing will depend on the sustainability of the inflation slowdown and the dynamics of inflation expectations. Should proinflationary risks materialise, we might need to make pauses between key rate changes.

This means that the key rate will not be lowered ‘on autopilot’. We will regularly monitor all key indicators of the Russian economy and external environment and adjust the key rate path accordingly, if necessary. In the coming months, we will pay close attention to how prices as well as households’ and businesses’ expectations respond to the VAT increase and tariff indexation and how the situation unfolds in terms of other proinflationary and disinflationary risks, that is, whether they become stronger or weaker.

Sustainably low inflation that we are striving to achieve is the only way to ensure moderate interest rates for all and a predictable environment for making long-term investments and plans. This paves the way for stable economic development and people’s welfare growth.

This is what we hope to see in 2026. Best wishes for the coming New Year!

Thank you for your attention.