Financial news: Interview with Alexey Zabotkin in the newspaper “Vedomosti”.

There are no disputes in business circles about the toughness of monetary credit policy (MCP). Small businesses warn about bankruptcies due to interest rates, large ones — about an investment pause, and some economists suggest the Central Bank consider stimulating GDP growth. Deputy Chairman of the Bank of Russia Alexey Zabotkin explained in an interview with Vedomosti why the regulator refuses excessive softness, how the key rate actually affects companies, what influence the Central Bank’s decisions have on budgetary policy, and the conflict in the Middle East.

— According to Rosstat data, GDP in the first quarter decreased by 0.2% in annual terms. The CBR estimate was slightly lower (-0.5%). In your view, how can the economic slowdown in the first quarter be explained, and why is there a difference between your estimate and Rosstat’s estimate?

– When assessing the dynamics of GDP, we ultimately rely on Rosstat data. The estimate of -0.5% was formed solely from the information we had at the time of the board of directors meeting – at that time, the actual data for March was not yet available.

January and February indicators were significantly distorted by one-off factors. Firstly, the calendar factor could subtract about 0.5 percentage points from the statistically measured GDP level of the first quarter. With this adjustment, growth would have been 0.3%. Rosstat considers it in accordance with generally accepted international methodology, i.e., it does not adjust the data taking into account working days, holidays, or leap days. However, from the perspective of statistical interpretation, this factor should necessarily be taken into account.

Secondly, severe frosts and snowfall affected a large number of regions and influenced a whole range of industries. In some sectors, this led to production growth—for example, in electricity generation and heat supply—while at the same time in construction and even in retail trade, harsh weather conditions restrained economic activity. Activity did not disappear—it rather shifted to warmer periods.

Thirdly, let us recall that the December data turned out to be somewhat better than expected. Why? Because part of the demand for durable goods shifted to the end of last year in anticipation of the VAT increase. Perhaps this effect turned out to be more significant than previously assumed.

We assess the dynamics of the first quarter as rather restrained, but positive year-on-year growth. April data, which were published in early June, confirm positive annual dynamics for many indicators and, accordingly, support this judgment. Overall, the current dynamics fit into our scenario of a gradual return of the economy to a state of low inflation and balanced growth.

As you saw, the Bank of Russia did not revise the GDP forecast for 2026 at the April meeting. The results of the first quarter do not provide grounds to change our forecast for the year.

– The CPI forecast for the first quarter was more positive (+1.6%).

– At the beginning of April, Rosstat revised the quarterly series of GDP for 2025. As a result, there was a redistribution of the actual annual dynamics between the quarters.

“Losses from high inflation will be significantly more likely to be short-term gains”

– Recently, proposals by economists have been made to expand the ECB mandate, for example, by including economic growth support objectives. They also talk about the necessity to strengthen coordination between the government and the ECB, in case the issuance turns out to be below potential. Do you consider it necessary to expand the ECB mandate?

– There is currently no need or substantial basis for such a discussion. Firstly, the goal of the DCP is already enshrined in the law on the Bank of Russia: it is price stability, including for the formation of conditions for balanced and sustainable economic growth. This formulation is exhaustive: the DCP is able and must ensure that the growth of demand corresponds to the production capabilities of the economy.

Secondly, by strengthening coordination, the authors of such ideas mean an additional softness or flexibility of the DCP, but in practice, this will simply mean higher inflation. This will not help either long-term growth or structural transformation of the economy. With higher inflation, not only nominal but also real interest rates will be higher, since everyone will demand a higher premium for inflation risk. As a result, financing investments will become more expensive, including for tasks of structural transformation.

Thirdly, the assertion that there are central banks in the world that target a specific figure of economic growth is absolutely incorrect. In some cases, the mandate does indeed mention full or maximum employment, but this is not the same as a target GDP growth rate. It refers to the full utilization of labor resources to achieve the potential level of economic growth. In this sense, the Russian formulation of “balanced and sustainable growth” actually accurately corresponds to the idea of full employment.It should be emphasized: among central banks from countries with low inflation, there are not those with a double mandate that would allow tolerance for high inflation in order to accelerate growth. In reality, it is impossible through additional issuance and higher inflation to increase sustainable economic growth rates.

A discussion of this kind might have made sense if the economy for many years had been developing under conditions of very low inflation and high unemployment, i.e., sustainably below its potential. For example, this was the case in the eurozone and the USA after the global financial crisis. But in Russia, the situation is quite the opposite. Over the past five years, inflation has been on average about twice as high as the target level, while unemployment remains at a record low level.

Moreover, such reasoning is now harmful. When calls are made to show greater tolerance to inflation, it increases people’s fears that low inflation will not be achieved. As a result, such discussions only slow down the reduction of inflation expectations, while market rates incorporate a higher inflation premium. The consequence of this is an extension of the period of tight monetary policy in order to break these inflation expectations.

– What do you think is the reason for the distrust towards the Central Bank’s policy?

– The current DCP cycle – is, essentially, the first full-fledged cycle of internal demand regulation using countercyclical DCP. Previously, businesses and economists mainly faced crisis episodes caused by external shocks, to which we reacted with a sharp but short-term increase in rates – primarily to hedge financial stability risks. It is enough to recall the beginning of 2022, the 2014-2015 crisis, or the global financial crisis of 2008.Then there was a short-term surge in interest rates, after which they dropped quite quickly because the economy was facing a sharp decline in aggregate demand due to an external shock.

For the first time, the economy is cooling down from a state of strong overheating of internal demand amid record low unemployment – and it is doing so without a sharp halt, but gradually and smoothly. Probably, both businesses and many economists find this process unusual and are worried that such dynamics could lead to an economic downturn.

However, with a properly structured GDP and an adequate trajectory of the key rate, the result should be a period of more moderate growth rates over two years. By 2025, the economy will have already passed this phase, and 2026 will also become part of this process. After that, inflation should stabilize at a low level, and GDP will enter an upward trend.

To assume that the economy will gain a long-term advantage from a more tolerant attitude toward high inflation would be a mistake. Yes, temporarily this may provide a short-term boost to economic activity, but in the long-term perspective, overall economic growth rates will be lower. As a result, the losses from high inflation will be significantly greater than the possible short-term benefits.

– Small businesses believe that the current DCP reduces profitability and leads to bankruptcies, with rates sometimes exceeding 30%. Meanwhile, large businesses, thanks to government orders and state guarantees, are able to borrow at a lower rate. What impact does the Central Bank’s policy have on small and medium-sized businesses (SMEs)? Do you take this into account when making decisions?

– The Central Bank of Russia influences demand in the economy as a whole – both consumer and investment demand. In this sense, the impact on the economic situation and the activity of small and large businesses in general is comparable. But for small businesses, it is always more difficult, since their financial flexibility is less, and they often operate in a more competitive environment.

We conduct monthly monitoring of about 15,000 enterprises across the country, where two-thirds of the sample are small and medium-sized businesses and micro-enterprises. The assessments and signals we receive from small businesses are an important indicator of what is happening.

This year, tax changes have affected small businesses more strongly than large companies. According to our monitoring, over the past 6-9 months, economic situation assessments have become narrower than they were in the first half of 2025, and lower than the levels of 2021. However, we do not see signs of a deep failure or a more significant worsening of assessments in the small business segment compared to large businesses.

According to estimates of the smallest businesses themselves, the current situation is more likely to correspond to a scenario of restrained, yet still positive growth.

– Large businesses also state that the key rate is a constraint on investments, including for the development of high-tech and export sectors. How justified are these remarks in your view? Was the maintenance of the rate at such a high level for so long justified?

– The constraint of high inflation (or rather its further acceleration) would have been a much stronger limitation for business than a temporary rate hike. Due to the growth of inflationary risk, market rates would have been higher. Operating costs would have increased faster. Now, on the contrary, investment activity has not frozen at all, nor has it fallen below its long-term averages. Forecasts – both ours, the Ministry of Economic Development’s, and those of analytical centers – suggest that this year investments will be about the same or slightly lower, but overall close to their historical maximums reached in 2024.Yes, the picture differs significantly across industries. This reflects structural shifts in demand – investments primarily go where demand is higher, where there is an underutilization of capacity.

And a more general consideration. Sometimes it seems to me that if the authorities agreed to limit inflation to the level of 7-10%, then the rates of economic growth in 2025 could remain at the level of 4-5%. However, such logic is incorrect — actual growth in any case would have begun to slow down.

The growth in 2023-2024 was made possible thanks to the fact that at the beginning of 2022 significant unused resources were saved in the economy. This primarily concerned physical resources, including the labor market: the unemployment rate then was more than 2 percentage points higher than it is now. During this period, the workforce increased by an additional 2 million people, who contributed to production growth. Moreover, there was room to expand budget expenditures. This was facilitated by the reserves of the Federal Treasury accumulated before 2022. Essentially, the economy developed in a mode of accelerated growth.However, this led to a new wave of accelerating inflation by mid-2024.

If the Bank of Russia had not taken the necessary measures and had not raised the key rate, then in 2025 the economy could have faced stagflation – a further acceleration of inflation alongside a simultaneous slowdown in real GDP growth. The pace of economic growth is limited by the rate of expansion of production capabilities, and this process takes time and does not happen instantly.

If the policy had really been excessively strict, today we would have already observed a slowdown in GDP growth and a significant decline in it. Moreover, unemployment would have risen, and inflation would have been significantly below the target level. This would have meant that aggregate demand was excessively suppressed, and the economy would have been operating substantially below its potential and the trajectory of balanced growth. However, there are no such signs in the current data.

Therefore, we believe that the conducted State Customs Policy corresponds to the current circumstances, including the previously increased volume of government demand.

“The contribution of the public sector to aggregate demand remains high”

– The conflict in the Middle East has been ongoing for several months now, and this affects the price of oil. Is it possible to assess now what effect it will have on trade supplies and inflation in Russia?

– It is now impossible to give a definite answer, because the situation is still developing. We are considering the impact of the blockade of the Strait of Hormuz through two main mechanisms.

The first is associated with the growth of world prices for oil, gas, and other commodities exported by Russia. This acts as a disinflationary factor, as it influences the economy through increased export revenues and a stronger exchange rate.

Another mechanism operates simultaneously. The longer the disruptions in supplies through the Strait of Hormuz last, the stronger the cumulative effect on the global economy becomes: prices rise not only for raw materials but also for all those goods produced from these under-delivered resources. This factor exerts an inflationary impact both on the global economy as a whole and on Russia.

The disinflationary effect has largely already been fully reflected, while the potential pro-inflationary effect continues to accumulate, as the situation remains in its current state. Therefore, the longer the closure of the Strait of Hormuz is prolonged, the stronger the balance of factors will shift towards pro-inflationary impact. And we must take this into account when assessing the risk balance.

– The budget deficit has already exceeded the plan for the year, and the Ministry of Finance associates this with accelerated financing of expenditures under state contracts. Do you suppose that fiscal policy will be a more inflationary factor than the Central Bank anticipated at the beginning of the year? And do you see risks associated with government debt and financing concessional programs?

– The disinflationary contribution to the budget, which was assumed in the budget law adopted in the fall, has not yet materialized. Therefore, when making decisions on the DCP, we must consider that the public sector’s contribution to aggregate demand remains high.

Regarding the influence of the key rate on the budget, one of the results of the current decisions on the DCP is a reduction in budget expenditures. The key rate is lowered and has already been reduced by 6.5 percentage points compared to the maximum level. This means that interest expenses on public debt with a floating rate decrease, as well as expenses on subsidizing preferential lending programs.

The source of interest rate risk for the budget, as well as for any other borrower, is not the change in the key rate itself, but the volume of obligations tied to the floating rate.

– After the Ministry of Economic Development published a new forecast, analysts calculated that, based on the laid-down exchange rate of the ruble and oil prices for the next year, we should have a budget expenditure reduction of about 3 trillion rubles. Under the condition of adhering to the budget rule regarding zero structural deficit. How important is it for the Central Bank to follow the structural balance and the budget rule overall when making decisions?

– The budget rule is an important element that ensures the predictability of budget policy and the contribution of government demand to aggregate demand. The parameters of the budget rule are significant, and their invariability and predictability are very important when making decisions on the fiscal consolidation plan (FCP).

If decisions are made about clarifying the parameters of the budget rule, the earlier they are announced, the better. This is related to the fact that the DCP operates with delays. The earlier we understand what the contribution of government demand to aggregate demand will be, the earlier we can adapt the parameters of the DCP and the trajectory of the key rate to these changes.

– Does the Central Bank participate in the discussion about the cutoff price according to the budget rule, and do you have your own proposals regarding its level?

– This is a decision of the government and parliament. But our main point is that with a lower base price, budgetary rules ensure greater confidence in the long-term sustainability of public finances.

“A series of structural factors lead to a stronger real exchange rate”

– In April and May, Rosstat recorded an unusual weekly deflation for these months. How does the Central Bank interpret these data?

— Deflation can only be said to occur when the annual inflation becomes negative and remains at this level for several months. A decrease in the overall consumer price index for a separate week is called deflation approximately as appropriately as considering isolated recessions.

We interpret price dynamics primarily based on monthly statistics, which take into account a much broader consumer basket than weekly data, and more accurately reflect the price picture. April statistics showed that the inflation slowdown continued, including in the core component. However, the main reason for such low price growth values is related to volatile components. In this case, it is primarily about fruit and vegetable products: the price decrease for them this year started earlier than usual. This is more likely statistical noise than a signal of a process occurring on the demand side.

– What contribution does the current strengthening of the ruble make to the slowdown in price growth? And in your view, has the lag of the ruble’s strengthening into prices changed recently?

– The strengthening of the exchange rate mainly occurred at the beginning of 2025. Since about May of last year, the rate had been quite stable and settled within the range of 75-85 rubles per dollar. In May, the ruble was somewhat stronger. The lag in the impact and the scale of the transfer of the exchange rate to prices did not change.

– What are the main reasons for the current strengthening of the ruble, in nominal terms, reaching a record over the past 3-4 years?

– The nominal exchange rate is now stronger than in 2024-2025, but in the long-term dynamics corresponds to the level of the end of 2021. The real effective exchange rate has also strengthened, however, to speak of its unprecedented strength is incorrect – it is far from the peaks of 2013-2014.

The factors listed lead to a stronger real exchange rate than before 2022. Firstly, the economy operates at a higher effective oil price, embedded in the budget rule. Secondly, sanctions pressure has reduced demand from citizens and businesses for accumulation of foreign assets, which has decreased demand for foreign currency. Thirdly, the share of imports in GDP has changed. While before 2022 it was stably about 20.5%, it has now decreased to 16%. Due to sanctions, localization, and the exchange rate’s technological sovereignty, a smaller portion of internal demand is converted into imports. Fourthly, prices for non-oil and gas exports have increased.Unlike oil, this effect is not smoothed out by the budget rule and directly contributes to the strengthening of the ruble. A strict fiscal rule also makes a contribution, but it is not decisive against the background of the listed structural factors.

– In May, inflation expectations among the population increased. Experts note a vicious circle, when inflation expectations among the population due to a psychological factor can influence a change in the key rate, and the regulator, in turn, takes inflation expectations data into account in its decisions. Why don’t they decrease and what is a significant factor for people when assessing them?

– Inflation expectations are not rising. However, we are concerned that they are not falling either.

This is not directly related to the level of the key rate. We do not see mechanisms through which a change in the rate could significantly affect inflation expectations within the span of one month. Our surveys show that people primarily rely on their own experience of perceiving price growth over the past 3-4 years and tend to transfer it into their expectations about the future.

If the economy has been in a high inflation environment for a long time, then inflation expectations can remain high significantly longer than if the inflation surge were more short-term. This cannot be ignored because both citizens and businesses make decisions about consumption, savings, and loans taking into account expectations of future inflation.

Therefore, the ECB always acts with a view to inflation expectations. So, the fact that they remain high limits the room for lowering the key interest rate until these expectations converge.

– How is it possible to influence them?

– The most convincing way to influence inflation – is to stand guard over low inflation and to decisively return it to a low level, so that no one has doubts that in the future price growth rates will be low.

– Has the Central Bank recorded an increase in demand for cash among Russians against the background of the internet shutdown? Do you see any risks of increased shadow turnover due to the increased share of cash? Would this hinder the fight for the legalization of the economy?

– The increase in cash in absolute terms since the beginning of the year was indeed higher than in the same period of 2024 and 2025. But it is not unprecedented at all – in its dynamics it rather corresponds to the beginning of 2023. The share of cash in the money supply has grown insignificantly: if a year ago the M0 indicator (cash in circulation) as part of M2 (money supply in the national definition) was about 14%, now it is approximately 14.4%. The indicator still remains below the levels of the end of 2024. The trend reversal has not occurred.

An important factor in demand remains the need for cash for current settlements and forming a reserve of funds. A significant role here is played by the fact that electronic payment methods do not always work stably: there are situations when in a store or cafe it is possible to pay only with cash due to disruptions with mobile internet or the operation of terminals.

Cash partially serves the shadow sector of the economy. However, it is not cash that creates the risks of expanding the shadow economy; rather, the increase in the shadow sector, among other things, leads to a growth in demand for cash. Since at the beginning of the year disruptions in the operation of mobile internet had a significant impact, it is still difficult to separate the roles of these two factors.

At the same time, the growth in the volume of cash itself is a normal phenomenon. In the long-term dynamics, cash, deposits, and the money supply M2 as a whole increase. This reflects the growth of nominal GDP. The absence of money supply growth would rather be a sign of economic decline.

The forecast for the growth of the money supply for the current year is 5-10%. We expect that the Central Bank’s policy will ultimately ensure such rates of growth in monetary aggregates, which are compatible with inflation close to 4%. However, data for April and May show that the slowdown in monetary aggregates in recent months has not occurred; on the contrary, the annual growth has increased somewhat.

“Economic conditions were changing too quickly and significantly”

— The Chairperson of the Central Bank, Elvira Nabiullina, said that the regulator will not strive for the target at any cost. Can it be said that we still have flexible inflation targeting? Do you take into account the influence of other factors when making decisions — not only the level of inflation, but also the economic dynamics?

– The Central Bank is obliged to ensure low inflation. In doing so, the regulator acts in a way to prevent excessive tightening of policy, – in other words, not to overdo it, i.e., not to create a situation where high unemployment arises and the economy falls below the trajectory of balanced and sustainable growth.

Targeting inflation at the 4% level, the Bank of Russia simultaneously takes into account the balance of risks and builds a policy so that the dynamics of demand remain sufficiently restrained for the stabilization of inflation at the target level, but without leading to its reduction below the target. This automatically means avoiding an excessive decline in economic activity. In this sense, the thesis that the fight against inflation is conducted at any cost should be interpreted.

At the same time, the task of returning inflation to the 4% level remains unchanged. The exceeding of the target in the last five years is not related to the Central Bank’s desire to maintain higher price growth, but rather to the fact that economic conditions changed too quickly and significantly, so returning inflation to the target required more time.

– There is another view of the potential for economic growth. What the Central Bank calls overheating, the Ministry of Economic Development considers to be a slowdown and an investment pause. It is difficult to assess the potential at the moment; perhaps, in 5-10 years it will turn out to be different. What do you base your opinion on when talking about the potential for economic growth?

– A measure of where the economy stands relative to its potential level is the state of the labor market and the dynamics of inflation. Potential GDP level is understood as the level of the economy that corresponds to full employment, i.e., low unemployment, and inflation at the target level.

It can be confidently stated that the economy operates below potential if high unemployment and inflation below the target are observed. Conversely, the economy operates above potential if unemployment remains low and inflation is high.

Unemployment is currently at a record low level, annual inflation is 5.5%, and the current growth rates of the stable part of prices are 4-5%. Therefore, there is no basis to assume that the economy is currently below its potential. Rather, it remains somewhat above its potential level. This is exactly what creates inflationary pressure.

“Most likely, the contribution of artificial intelligence will be positive”

— Speaking about the economy emerging from overheating, the Central Bank also noted objective constraints on growth, including a shortage of labor. And lately, recruitment agencies and experts have been increasingly saying that this problem is becoming less acute. Is it possible to observe a trend reversal and has, in your opinion, the labor market become less deficient recently?

Indeed, the highest labor market tension from the employers’ perspective was probably observed in mid-2024. This is evident from, among other things, the data from our monitoring. Since then, the indicator of employee provision has gradually become less negative. However, it still remains in a more negative zone than, for example, in 2021, when the problem of such high tension in the labor market practically did not exist.

Data from aggregators during a tight labor market period is significantly more important for us in terms of vacancy indicators than resumes, since one person can post several resumes at once. It is precisely the dynamics of the number of vacancies that better reflects the unsatisfied demand for the workforce.

By these indicators, we indeed observe a decrease in tension in the labor market. However, it is still premature to say that the labor market has returned to a balanced state, characteristic of the period before 2022. This process is far from complete. An important indicator remains the growth of wages, which still remains at a double-digit level and significantly outpaces the growth of labor productivity.

– Another trend that affects the labor market is the development of artificial intelligence (AI). There are different assessments of how this will impact employment. For example, in the WHI labor market, it was estimated that about 7% of workers in Russia could be at risk of layoffs. Does the CB evaluate the impact of the development of this technology on the future labor market? Do you consider this a risk at the present moment?

– II affects not only labor productivity, but also the overall factor productivity of the economy. And here there is a wide range of estimates – from extremely optimistic forecasts to much more moderate ones. With a high probability, the contribution of II will be positive, but how significant it will be is impossible to predict now.

Moreover, there are factors acting in the opposite direction. In particular, deglobalization and fragmentation of the world economy, on the contrary, reduce the potential growth rates of the global GDP.

Undoubtedly, in the analysis we take into account these trends as well. At the same time, such long-term trends have longer horizons, which already have secondary importance for the DCP.

– Could this lead to an increase in unemployment in the medium-term horizon in Russia?

– Historically, technological progress has not led to sustainable employment growth. As a rule, it was accompanied by two main processes.

The first is the redistribution of employment between sectors of the economy. During the industrial revolution, workers moved from agriculture to industry. Later, with the development of the post-industrial economy and the growth of the service sector, employment began to shift from industry to services. Similar processes will probably continue in the future.

The second long-term trend is the reduction in the length of the working week. Throughout the last century, the average number of working hours worldwide has been decreasing. If technological progress continues to ensure growth in labor productivity, this may mean a gradual further reduction in working time, which is necessary to maintain the accustomed standard of living.

– Do you use AI in your work? And does this technology influence the HR policy of the Central Bank?

– Bank Rossii strives to focus on the forefront of technological development. This is clearly visible, in particular, in the development of payment infrastructure. Machine learning technologies and large language models have been implemented at Bank Rossii for more than a year and are being used quite actively. This allows solving a number of tasks with significantly less labor and frees up employees’ time to tackle more creative tasks.

– Do you personally use AI technologies?

– D. This is a very convenient way to quickly summarize materials on any topic.

– What recommendations could you give to analysts when forecasting macroeconomic parameters under conditions of high uncertainty and a large number of “black swans”? What should one rely on in such unstable times?

– It is not worth exaggerating the degree of unpredictability of the current situation. The 1990s were also an extremely difficult period. In the 2000s, a large-scale global financial crisis occurred. In the 2010s, the economy faced serious shocks in the global oil and gas market, as well as the first wave of sanctions in 2014-2015. Well, the 2020s began with COVID. Events that are unexpected for analysts and regulators occur with enviable regularity.

The key task of analysts and regulators is to correctly interpret what is happening and understand how long-lasting the consequences of a particular shock may be. For this, it is necessary to study the history of the economy.

– What literature on economic history could you recommend?

– Memoirs of central bankers – this is a good starting point.

Anastasia Boyko and Ksenia Kotchenko, Vedomosti