Central Bank Governor Elvira Nabiullina addressed key monetary policy decisions during recent meetings. She explained that discussions focused on potential reductions to the benchmark interest rate, evaluating cuts of 100, 150, and 200 basis points in detail. The decision-making process remains flexible, dependent on economic data and inflation trends.
Nabiullina emphasized that while progress has been made in controlling inflation, the process of returning to the 4% target remains ongoing. She noted that achieving this goal requires not only statistical stability but also public perception of price stability. The central bank remains committed to maintaining tight monetary conditions until inflation stabilizes near the target level by 2026.
Regarding the banking sector, Nabiullina confirmed that major financial institutions maintain sufficient capital reserves and profitability, eliminating the need for recapitalization due to potential bad debt issues. She dismissed rumors of an impending banking crisis, citing strong financial indicators and stable operations across the sector.
On inflation risks, the governor acknowledged persistent pro-inflationary pressures while noting that disinflationary scenarios remain under consideration. Particular attention is paid to potential spikes in inflation expectations that could disrupt the current policy trajectory. The bank aims to balance rate reductions with maintaining price stability.
Deputy Governor Zabotkin echoed these concerns, emphasizing continuous monitoring of inflation expectations as a crucial factor in future rate decisions. Regarding fiscal policy, Nabiullina stated that adherence to budget rules remains critical for economic forecasting, with potential adjustments if government spending patterns change.
Economic projections show revised oil price assumptions at $55 per barrel for both current and future forecasts, with slightly reduced expectations for exports and balance of payments. The ruble’s stability is attributed to high interest rates making ruble-denominated assets attractive to domestic investors, combined with moderated import demand.
The central bank maintains that exchange rate fluctuations, while influenced by monetary policy, are not direct policy targets. Regarding potential sanctions escalation, officials confirmed contingency planning while emphasizing the financial sector’s demonstrated resilience to existing restrictions.
Nabiullina concluded by addressing external pressures on monetary policy decisions, affirming the bank’s independence in setting rates based on economic analysis rather than political considerations.
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Russia’s Nabiullina on rates, the economy and the banking sector
They spoke in Russian and the quotes below were translated into English by Reuters. n nSign up here. n nNABIULLINA ON KEY RATE DECISION: n n”During the discussion, options for reducing the rate were considered, the option of maintaining the rate was not considered. Options for reducing the rate by 100, 150 and 200 (basis points) were considered, but the options of 100 and 200 (basis points) were discussed in detail.” n nNABIULLINA ON FUTURE RATE DECISIONS: n n”If you look at our forecast for the key rate, it suggests that by the end of the year, at individual meetings, reductions of 100, 150 and 200 basis points are possible, as well as pauses. Here everything will depend on the incoming data. But such a uniform trajectory of reduction may be possible with a more convincing picture of inflation stabilisation, inflation expectations at a low level and the absence of new inflation shocks. For now, we assume the possibility of various steps.” n n”We are on the path to returning inflation to target, but this path has not yet been completed. There are already initial results. They allowed us to reduce the key rate again today, smoothly adapting the degree of monetary policy tightness to reduce inflationary pressure.” n n”But returning to the target does not simply mean several months of current price growth near 4%. It implies a stable consolidation of inflation at a low level not only in actual data, but also in the perception of people and businesses.” n n”Monetary policy has ensured a downward reversal of inflation, and it must remain tight for as long as it takes to sustainably return inflation to 4% in 2026 and consolidate it near this level.” n nNABIULLINA ON BANK RECAPITALISATION AND BAD DEBTS: n n”We do not see any need for recapitalisation of large banks due to the potential overhang of bad debts. The banking sector is profitable.” n n*NABIULLINA ON RUMOURS OF POSSIBLE BANKING CRISIS, SUPPORT MEASURES IN SUCH A SCENARIO n n”I will say again that these are rumours that are not based on anything … I can also give figures, because you need to look at the figures and the financial indicators. The banks are stable, they earn money, they have capital reserves. All this allows them to feel quite confident.” n n”We are keeping our finger on the pulse, but I do not see any reason to consider state support (for banks) in one form or another.” n nNABIULLINA ON INFLATION RISKS: n n”In the aggregate, pro-inflationary risks continue to prevail. However, when making decisions, we also take into account disinflationary risks. The main one is a faster cooling of credit and demand than we expect in the baseline forecast.” n n”We will reduce the rate in such a way that a spike of inflation does not occur. But, of course, we are concerned about increased inflation expectations.” n nZABOTKIN ON INFLATION RISKS: n n”The indications of caution in further decisions on the rate, which were voiced in the chairman ‘s statement, are essentially a reference, among other things, to the fact that we, of course, will act with an eye on what is happening with inflation expectations. It cannot be otherwise” n nNABIULLINA ON BUDGET: n n”Budget policy remains an important input for our forecast. We assume that the budget rule will be followed this year and in the following years. If budget plans change, it may be necessary to adjust the key rate trajectory.” n nNABIULLINA ON ECONOMIC CONDITIONS: n n”Compared to April, we have lowered our forecast for Russian oil prices to $55 per barrel this year and next. We have also slightly lowered our forecast for exports and the current account of the balance of payments for the next two years.” n n”At the same time, the rouble exchange rate is affected by flows not only on the current account, but also on the financial account of the balance of payments. High interest rates support the attractiveness of rouble assets compared to foreign ones for Russian citizens and companies. This, combined with more moderate demand for imports, ensures the stability of the rouble exchange rate, despite a slight reduction in exports.” n nNABIULLINA ON ROUBLE AND KEY RATE: n n”The strengthening of the rouble is explained precisely by the effects of a tight monetary policy. This is such a fundamental factor.” n n”If, of course, there is some radical deterioration in external conditions, of such a scale that it will interfere … with achieving 4% inflation in 2026, we will, of course, be ready to adjust the rate trajectory.” n nNABIULLINA ON INFLUENCE OF ROUBLE RATE ON MONETARY POLICY n n”As for the influence of the exchange rate, the dynamics of the exchange rate … we do not consider it, (though) it is still a factor that depends on our monetary policy. And a tight monetary policy, all other things being equal, affects the stabilisation of the exchange rate.” n nNABIULLINA ON THE ROUBLE AND BUDGET n n”The sensitivity of the rouble to an increase in government spending in general, to the budget deficit, is limited, regardless of the methods of financing it.” n n*”We do not expect any surprises in the autumn. In any case, we are not aware of any surprises. I know that many are now worried about a possible decline in commodity prices and, as a result, a shortfall in revenues, but for monetary policy, it is not just changes in revenues and expenditures that are important, but changes in the structural primary deficit.” n nNABIULLINA ON POSSIBLE TIGHTENING OF SANCTIONS ON FINANCIAL SECTOR: n n”… We also have an alternative risk scenario, under which we are considering a possible tightening of sanctions. In general, the financial sector has already shown through practice and experience that it is quite resistant to sanctions and we are pursuing a policy so that this resistance does not decrease.” n n*NABIULLINA ON PRESSURE ON THE CENTRAL BANK: n n”Of course, there are many voices, expert opinions in favor of lowering the rate. They are quite understandable, but … we do not perceive them as pressure, and we make decisions on the rate, as required by law, independently based on our own analysis of the current situation.”