Tight monetary policy sustained as Russian disinflation trends emerge

In 2025, Russia's GDP growth reached the upper bound of the Bank of Russia's forecast, demonstrating that a tight monetary policy stance does not impede economic expansion.

The central bank intends to maintain this policy for an extended period to achieve its 4 percent inflation target, expecting it to facilitate accelerated growth once a neutral stance is adopted under price stability.

The anticipated January price spike proved transitory, with February showing a decline in price growth rates consistent with the 4 percent target.

This improvement was supported by a reduction in household and business inflation expectations from their late 2025 highs, suggesting a positive shift in inflationary dynamics.

Demand in the economy is temporarily weakening, adapting to recent tax changes, which is expected to support continued disinflationary trends in the near future.

Nevertheless, the growth rate of underlying price components remains elevated, even adjusted for the VAT increase that pushed up estimated growth in January.

The regulator needs to ensure that disinflation has actually resumed and to cement this trend.

This is particularly important considering the anticipated reduction in the base oil price according to the fiscal rule and the indexation of utility tariffs scheduled for later this year.