Compared inflation with a high pulse rate. The main points from Nabiullina's speech at the VTB Forum

Central Bank Governor Elvira Nabiullina spoke at the VTB forum "Russia Calling!" with an overview of the current situation in the economy and financial sphere. She said that she expects inflation to fall to the target level of 4% in 2026, and assured that the high key rate has helped to prevent an inflationary spiral. How the Central Bank sees the future of the Russian economy - in the material "Izvestia".

About inflation

- Nabiullina said that inflation has not yet begun to decline. At the end of 2024, it will be higher than in the previous year, when it amounted to 7.42%. Inflation will need the whole of 2025 and part of 2026 to return to the 4% target. Nabiullina noted that inflation will not disappear by itself, and it is impossible to postpone the fight against it.

- The head of the Central Bank, explaining the negative consequences of inflation, compared it to a high temperature in a person - a sign of illness. She also compared it to a high heart rate, explaining that you can run a short distance with it, but you can't run a long distance. According to her, high inflation in the long run leads to unstable economic growth, while it should remain stable and based on the growth of the economy's potential, not on any external, uncontrollable factors.

There will be no stagflation: when the Central Bank will stop price growth

Economists discussed the prospects for fighting inflation and lowering the interest rate

- Nabiullina pointed out that if we start lowering the key rate now, it will be perceived by the economic community as an unwillingness or inability of the government to fight inflation. In the end, such a move would lead to an acceleration of price growth.

- High inflation can only benefit highly leveraged companies, which will find it easier to service their loans, and monopolists, who will be able to shift costs into higher prices for non-competitive goods. For efficient companies with low costs, inflation will be a blow, as well as for the general population, as savings and incomes will be devalued. The government will also have to index a number of expenditures in case of high inflation.

About the key rate

- Nabiullina noted that she admits the possibility of raising the key rate from the current level of 21% at the next meeting of the Central Bank on December 20. Relevant signals have already been sent earlier, she pointed out. At the same time, the head of the Central Bank emphasized that the decision has not yet been made.

- In favor of the decision to raise the key rate, according to Nabiullina, such a new pro-inflationary factor as the exchange rate. In November, the official ruble exchange rate exceeded Br109 per dollar, after which it fell to Br106 by December 4. Also, the head of the Central Bank noted the continuing high price growth.

Raising the key rate: why it is necessary and what it affects

The monetary tightening cycle is forecast to continue

- At the same time, Nabiullina noted that the operational data show a slowdown in lending, including corporate loans. The Central Bank has been seeking this reversal by raising the key rate over the past year and a half. In the past, Nabiullina herself said that the slowdown in lending will also lead to a slowdown in inflation, albeit with a certain delay.

- The Central Bank head assured that the key rate is a powerful tool to fight inflation and has already helped prevent the entry into an inflationary spiral, in which prices would have to rise at a much higher rate. It has been possible to contain inflation with a high key rate despite factors such as labor market shortages and sanctions.

On the economy and the budget

- Nabiullina said that the potential of Russia's economy is growing and will continue to grow in 2025. She considers large-scale investments that have continued over the past three years to be the key to this. She said the Central Bank is working to ensure monetary policy easing without recession, striking a balance between price stability and economic growth. In 2025, the Central Bank expects moderate economic growth.

- The head of the Central Bank called the budget for 2025 a disinflationary factor, i.e. lowering inflation, if it is implemented as adopted in the latest version. She pointed out that the share of budget expenditures in GDP is not growing, but warned that high leverage in expenditures and sufficient subsidized loans could still create extra money in the economy.

- Nabiullina also called the potential for placements on the Russian capital market huge. She suggested attracting them with new incentives to be developed jointly with the government.