The Central Bank of Russia insists that the country must achieve its 4% inflation target, which was adopted more than 10 years ago.
In numerical terms, the target remains unchanged. As the Central Bank notes, annual inflation fluctuated around 4% in 2017–2020. In 2021, price growth accelerated because of the effects of the coronavirus pandemic, while in 2022 inflation surged sharply ‘due to a fundamental change in domestic and external economic conditions’
‘The Bank of Russia’s policy is aimed at returning inflation to the target under any circumstances,’ the central bank stresses.
As a result, the Russian economy has become an economy of constantly pushing the target ‘to the right’. The monetary policy debate now comes down to two questions: when the target will be reached, and what price the economy will have to pay for this monetary policy persistence.
The Central Bank’s July forecast envisages inflation reaching the 4% target in 2027. In October, the regulator will revise its forecast, showing how the outlook has changed after taking new circumstances into account, including the disruption of oil-refining and logistics capacity and the indexation of housing and utilities tariffs.
In practice, this is not the first time the Central Bank has pushed back the deadline for achieving the target. Following the Central Bank, the government, through the Ministry of Economic Development, automatically and unconditionally accepts the regulator’s benchmarks when rewriting official forecasts used for budget planning
The Central Bank surveys several dozen leading analytical centres, apparently as a form of self-checking. A recent survey showed that experts believe the inflation target is now a prospect for 2028 rather than 2027. They expect inflation to reach 4.6% in 2027. The Central Bank’s review gives the median figure, meaning the level above and below which exactly half of the respondents placed their forecasts. This is the first signal that another shift ‘to the right’ is highly likely.
Independent calculations by analytical centres reveal two approaches. The first is relatively optimistic. For example, the Centre for Macroeconomic Analysis and Short-Term Forecasting, in the July version of its forecast, expects inflation to approach the target in 2028, at 4–4.25%, and settle at the target in 2029, at 3.6–4%.
The second approach is pessimistic. Neither the Russian Academy of Sciences’ Institute of Economic Forecasting nor the Higher School of Economics’ Development Centre sees signs that the target will be reached over the entire forecast horizon through 2029. Based on their current estimates, annual inflation of 4% can be expected only in the next decade, in the 2030s.
The second approach is pessimistic. Neither the Russian Academy of Sciences’ Institute of Economic Forecasting nor the Higher School of Economics’ Development Centre sees signs that the target will be reached over the entire forecast horizon through 2029. Based on their current estimates, annual inflation of 4% can be expected only in the next decade, in the 2030s.
As for changing the target, we believe that in future it would only be possible to consider lowering it. We are not considering raising it because, in our view, everyone would lose from a higher target. It is an illusion that this would bring rates down. If we raise the target, market rates will only increase. Therefore, we believe this would be harmful to the economy,’ Bank of Russia Governor Elvira Nabiullina said in the summer. She repeated the same point at a news conference following the meeting of the Central Bank’s Board of Directors on September 11. ‘In addition, a possible revision of the target simply because it is not being achieved would undermine confidence in the inflation-targeting regime and monetary policy. Of course, this is something we must not risk under any circumstances,’ Nabiullina also said.
The Central Bank has ultimately found itself facing an extremely difficult and unwelcome dilemma. Revising the target itself, the specific figure, would, in the Central Bank’s view, undermine confidence in monetary policy. The problem, however, is that insisting on the 4% target at all costs while merely pushing back the deadline for achieving it does little to strengthen confidence either.
