Page 25 - bne IntelliNews Russia OUTLOOK 2025

Russia’s Center for Macroeconomic Analysis and Short-term Forecasting (CMASF) spoke openly in a report in December about possible stagflation, flagging the risk of a recession and falling productivity, especially in low-profit sectors and industries with long project implementation timeframes.
In the first half of 2024 capital investment was up 10% y/y, but by November it had gone into the red. Russian Prime Minister Mikhail Mishustin has blamed very high interest rates for reduced investment. He lamented in November that “savings are more profitable than investments.” The head of state-owned conglomerate Rostec, Sergei Chemezov, said shortly afterwards that interest rates were a “brake” on industrial development, warning they could even lead to a halt in arms exports.
He, and others, have called for the CBR to “coordinate” its monetary policy more closely with the government, but CBR Governor Elvira Nabiullina is furiously resisting encroaching on the regulator’s independence.
The Central Bank blames external factors – sanctions and cheap oil – as the reasons for the slowdown, along with the economy reaching its capacity utilisation limits and the ongoing labour shortage.
Industrialists, and economists aligned with the government, blame the Central Bank for keeping interest rates so high. Economists believe hiking the rate further will not curb inflation, as the inflationary pressure is not monetary in nature, but will only increase the debt burden on business and make it impossible to lend to companies. Economists at the Academy of Science have made a similar argument, but noted that other costs were also rising – including wages, regulated tariffs, taxes and fees.
Nabiullina appeared to buckle under the pressure at the last monetary policy meeting of the year on December 20, keeping rates on hold at 21%, when she was almost universally expected to hike rates by 200 bp. The surprise decision has called into question the independence of the central bank.
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