Central Bank Governor Elvira Nabiullina told Nezavisimaya Gazeta at a press conference on Friday that, under tight monetary policy, higher labour productivity can be regarded as the main driver of economic growth in Russia. At the same time, the Central Bank chief rejected the assertion that the regulator’s policy is currently suppressing consumption and investment. According to data presented by the regulator, Russian consumer spending depends on credit by only 5%, while business investment depends on borrowing by just a quarter
The Central Bank paused its key rate cuts, leaving the rate at 14% a year in September. The current monetary conditions were described by the Central Bank as ‘moderately tight’.
The Central Bank paused its key rate cuts, leaving the rate at 14% a year in September. The current monetary conditions were described by the Central Bank as ‘moderately tight’.
Annual inflation stood at 6.3% as of September 7, according to the regulator’s estimate. ‘Inflationary risks have increased and prevail over disinflationary risks over the medium term,’ the regulator said.
The main inflationary risks, in its assessment, are associated with an imbalance between demand and supply if domestic demand proves stronger and production capacity remains offline for longer in certain sectors. This refers to industries affected by attacks involving enemy drones.
Elevated inflation expectations may make it easier for businesses to pass higher costs on to prices. In addition, as far as domestic trends are concerned, the Bank of Russia says the economy ‘continues to face inflationary risks associated with a prolonged period of wage growth exceeding labour productivity growth’.
‘When assessing monetary conditions in the coming months, we will pay particular attention to two factors. First, how sustainable and strong corporate credit growth will be. Second, what the final budget projections will look like, which are expected to become known this month,’ Nabiullina said.
In making further key rate decisions, the Central Bank will focus on inflation, inflation expectations and the balance of inflationary and disinflationary risks. According to the Central Bank governor, the key rate trajectory will be designed to ensure that inflation falls to the 4% target in 2027 and remains at that level.
One of the Central Bank’s critics, Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, said the key rate had now fallen to sixth place among the constraints facing businesses in surveys of companies.
‘The reason is that the rate itself is no longer what matters to businesses, but the negative consequences of keeping it at a high level for so long. Incidentally, cuts to investment programmes have also moved from the category of “problem” to the category of “fact of life”,’ he said.
Businesses are now more sensitive to the direct consequences of a prolonged period of ‘expensive money’, Shokhin said: non-payments by counterparties, a shortage of working capital, weak demand and difficulties in securing supplies of raw materials.
‘Expensive credit squeezes working capital, companies start financing themselves through payment deferrals to partners, and payment discipline across the chain deteriorates,’ the RSPP chief explained.
‘The outlook is also worrying’: the trajectory towards the 4% inflation target and a single-digit key rate is slowing. More than half of the companies surveyed expect the economy to enter a downturn, Shokhin said, while ‘only a small proportion expect a return to growth’.
In its July medium-term forecast, which will be revised in October, the Central Bank itself projected Russian GDP growth of between 0% and 1% in 2026, which looks more like stagnation. The regulator then expects economic growth to accelerate sharply in 2027, partly because of the low base, to 1.5% to 2.5%.
Consumer and investment demand are often regarded as the main drivers of economic growth. But at present, it would appear, both are being constrained by monetary policy measures.
This raises the question: under such conditions, what can be regarded as the main driver of economic growth in Russia? Nezavisimaya Gazeta put the question to the Central Bank at Friday’s press conference following the board meeting on the key rate
‘It is true that demand is usually considered a driver of growth. But there is another side to economic growth, and that is supply,’ Nabiullina told Nezavisimaya Gazeta. ‘In my view, the economic growth driver we should be looking at now in order to achieve sustained high growth rates is higher labour productivity in the economy.’ According to the regulator’s estimates, Russia currently lags behind many other countries on this measure.
The Central Bank then offered a clarification that appeared to alter the substance of its preceding argument
In response to a question from Nezavisimaya Gazeta, the Central Bank governor rejected the claim that tight monetary policy is currently suppressing consumer demand, consumption and investment in the Russian economy.
Her explanation was that monetary policy cannot suppress them because they are barely dependent on access to credit
‘Consumer demand is growing actively in our economy. It has slowed, but the level of consumption remains fairly high. This growth is supported primarily by incomes rather than credit. Consumer loans have never accounted for a very large share of consumption. Last year, they covered only 5% of citizens’ consumption,’ Nabiullina said. ‘The main factor is household income growth, which has been very high throughout these years.’
The situation is similar with investment, according to the Central Bank governor:
Companies primarily finance investment from their own funds. The share of borrowed funds is around a quarter, according to various estimates. This includes bank loans and stock market instruments. Investment dynamics in the second quarter are also better than at the beginning of the year.’
The Central Bank’s usual argument, it should be recalled, was that monetary policy targets demand rather than supply and that the regulator’s task is to adjust demand so that it matches the economy’s production capacity and does not spill over into accelerating price growth. Nabiullina essentially repeated the same argument last Friday.
However, in its usual argument, the regulator has nevertheless placed particular emphasis on lending. In June, Nabiullina explained that fiscal and monetary policy simultaneously affect demand in the economy, and that if the fiscal contribution increases to implement priority tasks, monetary policy should act as a stabiliser: ‘Its tightness should change in order to correspondingly reduce the contribution of credit to aggregate demand.’ (See Nezavisimaya Gazeta, June 21, 2026)
But the Central Bank’s latest reasoning may have inadvertently revealed a hint that credit in the economy, like the numerous one-off factors that accelerate inflation, exists independently, while the Central Bank’s measures exist independently of it.
