Central Bank of Russia could raise key rate trajectory for 2026-2027; this might not be neutral in 2028 either
MOSCOW. June 19 (Interfax) - Elevated inflationary risks, including the budget factor, could force the Central Bank of Russia to raise its key rate trajectory, with changes mostly affecting the forecast for 2026-2027.
"We will unveil our new vision of the key rate trajectory at the key rate meeting [in Jul], as I've said, and assess the dynamics that may be needed for 2026, 2027, and for 2028. The changes will probably mostly concern 2026-2027, but this will still need to be reviewed and assessed," Central Bank Governor Elvira Nabiullina said at a press conference.
She said that if the rate trajectory is revised, it will be up rather than down.
CBR Deputy Governor Alexei Zabotkin said that all other things being equal, if the budget does not produce a zero structural deficit, then the Central Bank's key rate will not be neutral in 2028 either.
"We need to work on the assumption that if fiscal policy still projects a non-zero structural primary deficit in 2028, this will mean that monetary policy will probably not be completely neutral in 2028 either, because it will have to offset this. But again, all other things being equal," Zabotkin said.
Fiscal policy change could also influence how the CBR adjusts its neutral rate assessment, Nabiullina said. She said the regulator conducted this analysis each time as it drafted the main unified state monetary policy guidelines.
The Central Bank said in a press release that fiscal policy over the three-year horizon would be more accommodative than previously expected. This may require a higher key rate path than assumed in the April baseline scenario.
The Central Bank's April forecast envisaged an average key rate of 14.0%-14.5% for 2026, 8%-10% for 2027 and 7.5%-8.5% for 2028 (previously, the CBR assessed this range as neutral).
"As for a single-figure rate, our April forecast did not envisage key rate reduction to single figures, that is, below 10%, this year. I said inflationary risks had actually increased. And if the key rate trajectory forecast is revised, it will likely be up, not down. Scope for key rate reduction at the end of this year, perhaps even next year (questions about 2028 have already been raised here), will likely narrow," Nabiullina said.
The Central Bank does not see the need for further cooling of aggregate demand.
"We do not believe that aggregate demand should cool further because government demand will make a greater contribution to both demand and GDP growth in 2026 and 2027, and he private sector's contribution should be more subdued. Otherwise, there will be no actual additional GDP growth; all this demand stimulus will just dissipate again into faster inflation," Nabiullina said.
This cannot be allowed as it will have negative consequences for both households and businesses.
"Of course, we listen to the business community and experts. Their arguments, including those aired at the forum [SPIEF], are on the list of considerations that my colleagues and I consider when we discuss these issues at the board of directors, but we make decisions based on an independent analysis of the data [and medium-term forecast]," Nabiullina said.
