The Central Bank of Russia (CBR) released its Main Directions of the Single State Monetary Policy (MSMP) for 2026–2028 on September 4, warning of persistent inflationary pressures and external uncertainties while reaffirming its commitment to a 4% inflation target.

The report is closely watched as it sets out the CBR’s thinking for the coming year and forms the basis of its policy decision and provides the framework for its monetary policy. In last year’s report, CBR governor Elvia Nabiullina predicted a sharp slowdown for this year, which turned out to be highly accurate. She also launched her unorthodox attempt to artificially cool the economy using non-monetary policy methods, which has also successfully brought sticky inflation down that is now falling faster than expected.

The new forecast sets out four scenarios for the monetary policy framework and key macroeconomic assumptions for the next three years. It projects inflation to return to the 4% target from the 8.8% in August only by mid-2025 – Russia’s main macroeconomic problem of the day.

“The Bank of Russia will aim to ensure inflation returns to 4% and stabilises close to this level,” the policy paper states, highlighting high pro-inflationary risks over the forecast horizon.

The central bank noted that the economy continues to grow despite structural constraints and geopolitical pressures, but warned that labour shortages, high capacity utilisation, and elevated domestic demand are contributing to inflationary persistence. “Current monetary conditions remain tight, which is necessary to limit price growth,” the CBR said.

Now a race is on between bringing down inflation fast enough to allow the regulator to continue to cut rates fast enough to boost growth and avoid a recession.

German Gref, CEO of Russia's dominant lender Sberbank, said on September 4 that the country's economy was losing this race and had reached technical "stagnation" level and warned a recession could be looming.

Speaking to reporters on the sidelines of the Eastern Economic Forum in the city of Vladivostok, which has just got underway, Gref said that the expected 400bp of rate cuts to 14% by year-end, but that would “not be enough to revive the economy.”

"It is important to move out of this period of controlled cooling of the economy so that it does not turn into stagnation, because reviving the economy will be much more difficult than cooling it down," he said. "At current inflation levels, the rate at which we can hope for economic recovery is 12% or lower. So somewhere around these levels, we will most likely see economic recovery."

The central bank will hold a rate-setting meeting on September 12. In the CBR’s baseline scenario growth this year will be 1–2%, inflation will return to 4% next year, and the monetary policy interest rates will fall to an average of 12–13% in 2026.

Boosting growth

Falling inflation has allowed the CBR to make 300bp of rate cuts since the summer to the current 18% and the regulator says it expects to make another 300bp of cuts before the end of the year, but the jury remains out as to if that will be enough to boost flagging growth.

The economy grew strongly in 2023 and 2024, by 4.3% in both years, but stalled at the start of this year. Russia's Finance Minister Anton Siluanov told Russian President Vladimir Putin on August 27 that the country has lowered its annual economic growth forecast for 2025 from 2.5% to 1.5%, as the military Keynesianism boost wears off. The International Monetary Fund (IMF) recently downgraded its Russian growth forecast even more drastically to 0.9% and the Ministry of Economic Development and Trade its growth expectation to 1.2% this week – less than half of its original estimate.

Slower growth will cut the VAT take which makes up the largest part of budget income, and comes on top of falling oil prices, another important source of income. Officials also expect that this year's federal budget deficit might exceed the current forecast of 1.7% of GDP and come in at 2.2% of GDP. When the budget was formulated, the deficit was estimated at 0.5% of GDP, but the government has long since blown through that modest level. By the end of July, the deficit reached RUB4.88 trillion, triple the level at the same period last year a trillion rubles over the full year goal of RUB3.8 trillion, due to unrestrained military spending. (chart)

Russia's revenue from oil and gas has seen the greatest decline: in May, it fell 35% y/y; in June, 34%; in July, 28%; and for the first seven months of the year, 19%.

Ukrainian drone strikes on Russian refineries and pipeline facilities have also played a major role, cutting the production of oil products by around 20% in August alone, which previously processed around 1.1mn barrels of oil daily. Additionally, the important Baltic port of Ust-Luga’s oil export terminal was hit by Ukrainian missiles and will operate at only half its usual capacity in September because of pipeline infrastructure damage, restricting oil exports. Oil supplies via the Druzhba oil pipeline to Hungary and Slovakia were also halted for several days after an attack.

Risks

Key risks to the inflation outlook include volatility in export revenues, high budget expenditures, and the potential for further geopolitical shocks. The CBR said that disinflationary forces could also emerge if domestic demand weakens or external demand for Russian exports falls sharply.

On interest rates, the CBR confirmed that its approach will remain data-dependent and aimed at maintaining tight monetary conditions until price growth decelerates.

“If inflation deviates from the forecast, the Bank of Russia will adjust its monetary policy stance accordingly to bring inflation back to target,” the report said.

The policy brief also outlined the long-term implications of Russia’s economic reorientation toward domestic production and trade with so-called “friendly countries.” While this shift has helped stabilise some sectors, the CBR warned it may also limit productivity growth and restrict access to investment and technology. “The Russian economy is adapting to a new structure of foreign trade and production chains,” the document noted. Previously, Nabiullina warned Russian companies that they will have to downgrade their technology by “two generations” as a result of sanctions. However, in the meantime, China continues to make progress in closing the technology gap with the West and has become the main source of technology imports to Russia.

The central bank said that structural changes—such as the redirection of logistics and the strengthening of financial independence—will require monetary policy to remain flexible. “Achieving macroeconomic stability under such conditions demands a careful balance between supporting growth and containing inflation,” the CBR stated.

The MSMP also reaffirmed the importance of maintaining a floating exchange rate, calling it a “key element of Russia’s monetary policy framework” that helps absorb external shocks. The document dismissed the idea of a fixed ruble regime, warning that such a move would limit policy flexibility and potentially raise inflation volatility.

Digitalisation of the financial sector remains a priority, with the continued development of the digital ruble and financial infrastructure expected to support efficiency and resilience. The central bank stressed that these innovations must not compromise financial stability or monetary control.

“The Bank of Russia’s key objective remains to ensure price and financial stability as a foundation for sustainable economic development,” the policy document concluded.

The scenario fork shows the Central Bank is determined to avoid a return to aggressive rate hikes even in tougher conditions. Rate cuts will be cautious and gradual to manage risks.

The outlook will frustrate Russia’s state-owned companies, which are pushing for faster rate reductions. Oil major Rosneft’s Igor Sechin, criticised the report, saying the pace of cuts is “clearly insufficient.”

 

Main Directions of the Single State Monetary Policy scenarios:

Baseline Scenario

• GDP growth: 1–2% in 2025, 0.5–1.5% in 2026, 1.5–2.5% in 2025–2028.
• Inflation: Returns to 4% in 2026, stabilises thereafter.
• Central Bank rate: Averages 12–13%.
• Geopolitical context: Sanctions remain or tighten.
• Global backdrop: US gradually reduces Trump’s tariffs, global economy grows but slower than 2000–2019.

Favourable (Disinflationary) Scenario

• Drivers: Higher productivity and stronger investment expand supply.
• Inflation: Falls to 3–4% in 2026.
• Central Bank rate: 10.5–11.5%.
• Impact: More growth potential without inflationary pressure.

Pro-Inflationary Scenario

• Drivers: Harsher sanctions, weaker investment, loss of technology access, strong domestic demand.
• Inflation: 4–5% in 2026.
• Central Bank rate: 14–16%.
• Impact: Cost pressures and sanctions push prices higher.

Risk Scenario (Global Crisis)

• Triggers: Escalation of trade war, US and eurozone recession, tighter sanctions.
• Financial impact: Global financial crisis similar to 2007–2008.
• GDP growth (Russia): Negative in 2026, -3.5% to -2.5%.
• Inflation: 10–12%.
• Central Bank rate: 16–18% in 2026 (down from 18.8–19.6% in 2025), possibly 18–20% in 2027.