Central Bank of Russia assesses draft budget as disinflationary, allows for short-term price reaction to VAT increase
MOSCOW. Sept 25 (Interfax) - The draft federal budget for 2026-2028 is assessed as disinflationary, and the VAT increase will have a short-term impact on price dynamics but will not be a source of sustained inflationary pressure, Central Bank of Russia Governor Elvira Nabiullina said.
"We currently assess the draft budget as disinflationary. Yes, a short-term price reaction to the VAT increase is likely. But recall the experience of 2019, when VAT also increased by 2 percentage points (p.p.). And the reaction was moderate. One cannot simply calculate directly that this will translate one-to-one into price increases. Back then, VAT increased by 2 percentage points, and it added 0.6-0.7 points to inflation," Nabiullina said during the International Banking Forum organized by the Association of Russian Banks.
"Even if there is such an effect, it is a temporary, one-off effect. It may, to some extent, affect the speed of the decline in inflation expectations, but unlike an increase in the deficit as a possible alternative, financed through borrowing, it certainly cannot be a source of sustained inflationary pressure. That is the most important thing," she said.
The predictability of budgetary policy is a crucial factor in decisions regarding the key rate. "And the fact that certainty has emerged is a very positive factor. I can say right away that for the Central Bank, a balanced budget is much better than an increase in the deficit would have been. This is better for both fiscal sustainability, and for inflation, and for the level of interest rates. Why is that? Because the more the state increases its debt, the higher we have to maintain rates, and the less room remains for credit to the private sector," she said.
If the government had opted to increase the budget deficit to finance necessary expenditures, the Central Bank would have had to significantly raise its rate forecast for 2026. "Currently, let me remind you, it is 12%-13%, and the government's decision alleviates this concern of ours," she said.
Nabiullina also noted the importance of gradually reducing the oil price cut-off in the budget rule. "This will have a beneficial effect on long-term interest rates, because risk premiums will decrease," she said.
"We now see certainty regarding the budget and, of course, will take this into account when making the decision on the rate in October [October 24]," she said.
Sy mt
