Putin forces Central Bank to cut key rate – Bloomberg

For many years, Russian leader Vladimir Putin has kept his distance from Russia's monetary policy and avoided interfering in the work of the Central Bank. The latest cut to the key rate, however, came under pressure.

Source: Bloomberg

Details: Bloomberg reported that Putin had publicly supported Russian Central Bank Governor Elvira Nabiullina, advocating the bank's independence, "rarely, if ever, signaling where borrowing costs should go".

"That appears to have changed. Within the space of two weeks in July, the president twice signaled that the key interest rate should be lower, in unusually direct commentary ahead of a policy meeting," Bloomberg reported.

The Central Bank said the decision to cut the key rate by 25 basis points to 14% last month was taken independently.

Bloomberg pointed out, however, that the bank's leadership cut the rate without publishing forecast information that used to be a hallmark of Nabiullina's tenure, "leaving investors with less visibility on the path ahead".

"The episode offers a glimpse into how more than four years of war in Ukraine have reshaped Russia's institutions," Bloomberg said.

The Central Bank is increasingly operating within a system where political priorities are becoming harder to separate from monetary policy, as Russia's wartime economy comes under strain from slowing growth and large-scale government spending.

Nabiullina acknowledged that the Central Bank could temporarily show greater flexibility in reaching its long-term inflation target of 4%, although there is no formal agreement on this, Bloomberg reported, citing a source close to the Russian government.

Allowing inflation to exceed the target by 1-2 percentage points for a limited period would be undesirable but not critical, the source said, comparing such an approach to "lifting the lid a little off a boiling kettle".

In July, bank officials raised their year-end inflation forecast to 6-7%, up from the April forecast of 4.5-5.5%. They also lowered their GDP growth forecast for 2026 from 0.5-1.5% to 0-1%.

Data from Russia's Federal Statistics Service showed that the first weekly decline in petrol prices this year helped Russia move slightly into deflation in the week ending 3 August. However, the Russian Ministry of Economy estimated that annual inflation accelerated to 6.11% last week.

Background:

• Russia's Central Bank recently cut the key rate and released a new macroeconomic forecast, in which projected inflation rose from 4.5-5.5% to 6-7%.
• It was reported earlier that Russian federal budget spending and the deficit for 2026 could exceed official plans by more than RUB 1 trillion, or US$12.85 billion.
• Russian banks currently have no free rouble liquidity to buy federal loan bonds, which Russia's Ministry of Finance uses to cover the budget deficit, Taras Skvortsov, Vice-President and Chief Financial Officer of Russia's Sberbank, the largest state-owned banking company in Russia, reported.

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