Officials at Russia’s Central Bank say their major priorities are maintaining the stability of the national currency and inflation control through a tight policy of high borrowing costs. However, empirical data suggest the rouble has been the most volatile currency over the past decade. Domestic statistics also indicate that the policy of exceptionally high costs has hit low-income Russians hardest, as output of domestically produced goods has declined. New data contradicting the Central Bank’s claims has been published by independent Russian scholars and economists.
Russians see high inflation as an unfair tax that hits the most vulnerable hardest, Сentral Bank Head Elvira Nabiullina has repeatedly argued in defence of her policy of exceptionally high borrowing costs.
‘Low inflation, which we are working to achieve, is fundamentally important for people on modest incomes. It is no coincidence that inflation is often described as a tax on the poor,’ she has said. In theory, the argument is sound. In practice, the picture is more complex. The Central Bank’s high key rate appears to drive a downturn more than it controls inflation. As a result, households face falling incomes and wages, while the annual rate of price increase has slowed only marginally.
As widely reported, inflation in Russia fell by 30 % over the past year, while economic upturn slowed fourfold (see NG dated March 15, 2026). The Central Bank’s tight monetary policy is now pushing the economy towards recession. Against the backdrop of claims that such measures are designed to protect the poor, the economy is experiencing a decline in output, falling investment and a growing list of goods that Russians can no longer afford.
‘In conditions of money supply contraction and high borrowing costs, investment and business activity decline, leading to a justified reduction in output across main sectors of the economy. The resulting contraction in supply becomes a key driver of further price increases, which in turn depresses demand for essential goods and services. This effect is particularly pronounced among the most vulnerable, low-income groups, who predominantly consume domestically produced goods,’ say economists Elena Uzyakova and Rafael Uzyakov of the Institute of Economic Forecasting of the Russian Academy of Sciences.
They also note that inflation expectations play a significant role in driving price increase and are indirectly shaped by the Central Bank’s tight policy stance. ‘A high key rate reduces household incomes and, consequently, savings, which are ultimately determined by aggregate investment,’ the economists argue. (Source: Institute of Economic Forecasting of the Russian Academy of Sciences)
Central Bank policy weighs most heavily on living standards and, as demand contracts, on domestic output. Low-income households face rising prices for domestically produced goods and services and are forced to cut consumption. Higher-income groups, with a stronger propensity to save, tend to hold funds in bank accounts amid persistent economic uncertainty. Rising prices erode living standards, while economic slowdown reduces household incomes and, in turn, consumption and overall savings, according to Elena Uzyakova and Rafael Uzyakov.
Comparing data on economic growth, inflation and household incomes, the economists note that Russia sustained strong GDP and income growth even when inflation exceeded the Central Bank’s 4 % annual target.
‘The Central Bank’s high key rate is the main factor behind the break in the growth path, which had resumed in 2023–2024 after the shock of sanctions and disrupted supply chains,’ considers State Duma deputy and economist Oksana Dmitrieva.
She notes that since 2015 the Central Bank has failed to meet its 4 % inflation target. ‘What is the point of inflation targeting strategy if it has not been achieved for a decade?’ she wonders. ‘Setting an a priori unattainable target effectively gives policymakers free rein to suppress upturn and creates misleading benchmarks for budget planning and commercial contracts,’ Dmitrieva says (see NG dated March 29, 2026)
The Bank of Russia’s monetary policy is formally tasked with safeguarding the rouble’s strength by maintaining price stability, as set out in the Federal Law ‘On the Central Bank’. Officials stress that ‘currency strength does not imply a fixed exchange rate, but the preservation of purchasing power through consistently low inflation’. In practice, however, the Central Bank has yet to achieve ‘consistently low inflation’ at any point in its history. What it has delivered instead is the most volatile currency of the past decade.
A report by the Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) compares the rouble’s volatility with that of the Turkish lira, Mexican peso, Brazilian real, South African rand and other emerging market currencies. The findings show that since 2015 the rouble’s volatility has been three times higher than that of most peers. It ranks as the most unstable currency in the group, outpacing its closest rival, the Turkish lira, by roughly 50 %.
ORIGINAL:NG/High Key Rate Fails to Protect Low-Income Russians
