Will Nabiullina cut the key interest rate tomorrow despite the record deficit?
Tomorrow’s interest rate meeting of the Russian Central Bank is being awaited with particular anticipation. But it’s not just the interest rate decision that’s generating excitement—it’s also the woman who is set to announce it. Central Bank Governor Elvira Nabiullina last appeared in public on May 22 (pictured). The St. Petersburg Economic Forum in early June took place unexpectedly without her, as did a subsequent stock market conference.
Initial reports suggested that Nabiullina had missed the forum—considered Russia’s most important economic event—due to the funeral of her advisor, Alexei Moschin. The longtime Russian representative to the International Monetary Fund had died in early June at the age of 69. Yet Nabiullina was not seen at his memorial service on June 10 either. The Central Bank had since attributed her absence to illness. Her absence for weeks fueled speculation, which Kremlin spokesman Dmitry Peskov countered by saying there was no cause for “conspiracy theories.”
Nabiullina’s term as central bank chief expires in June 2027, and the law does not provide for a further extension. Nevertheless, there has been no open discussion of her succession so far. According to media reports, however, lists of candidates are circulating in government and banking circles. Maxim Oreshkin, the deputy head of the Presidential Administration, is the name mentioned most frequently. He previously served as Minister of Economic Development and as an advisor to the president—just like Nabiullina herself—and, alongside her and Finance Minister Anton Siluanov, is one of the key figures responsible for Russian economic policy. However, reports suggest that Oreshkin himself is less interested in the central bank post than in the office of prime minister. Other candidates include Pyotr Fradkov, CEO of PSB, a major bank specializing in the defense sector, and Andrei Kostin, the long-time head of VTB, the second-largest bank, which is also state-owned. However, it is considered unlikely that either of these two bankers will succeed Nabiullina. Kostin is reportedly satisfied with his current role, and Fradkov’s name has come up mainly because of PSB’s growing influence, according to the reports.
First Appearance After Four Weeks of Silence
On Monday, the Central Bank finally announced that Nabiullina would participate in the press conference following the interest rate meeting. This raises the question not only of how she will present herself on Friday after four weeks of silence, but also whether she will cut the key interest rate for the ninth consecutive time. Observers have little doubt about this: In the usual surveys conducted before the interest rate decision, the vast majority of analysts at major Russian banks and financial institutions expect a cut of 0.5 percentage points to 14%. The Central Bank has taken this approach in its past five rate cuts.
The main factor supporting further easing of monetary policy is falling inflation. It slowed to 5.31% in May, down from 5.58% in April and 5.86% in March. “Given the falling inflation, we can justifiably expect a cut in the key interest rate,” President Vladimir Putin said last week at a government meeting. The measures to combat inflation—the most important of which is the high key interest rate—have hampered growth and led to “caution” in investment, as Putin explained. In fact, the Russian economy contracted by 0.2% in the first quarter, marking the first quarterly decline in three years. Despite a spring rebound, the Ministry of Economic Development lowered its growth forecast for 2026 to just 0.4%. According to the statistics agency Rosstat, investment in fixed assets even plummeted by 14%. In the fourth quarter of 2025, the decline stood at 5.3%, and for the full year of 2025, it was 2.3%.
Central Bank Takes a Critical View of Deficit Policy
The Central Bank, however, recently cited other factors as arguments against a rapid rate cut, foremost among them the high government deficit. In the first five months, it amounted to 6 trillion rubles (71.7 billion euros), compared to a projected figure of 3.77 trillion rubles (45 billion euros). The government appears to have come to terms with the high deficit. Finance Minister Anton Siluanov acknowledged that a balanced budget—excluding debt service—is not expected until 2029, rather than next year. In addition, the Duma passed a law last week under an expedited procedure that allows the Ministry of Finance to take on new debt beyond the previous legal limit and without parliamentary approval.
The deficit is driven by high government spending. This spending also contributed to a 13.2% year-over-year increase in the money supply in May, which exceeded the central bank’s expectations and is likely to increase inflationary pressure. The strong ruble also contributed to the recent low inflation rate. Should it weaken in the second half of the year, as hoped by economic and political circles, that could accelerate inflation again. So far, Nabiullina has been opposed to such a deficit-driven policy. Following the last interest rate meeting in late April, she explained that monetary policy must be all the more stringent the greater the government spending and the higher the budget deficit.
However, the more significant decision is likely to come at the next meeting on July 24, according to Ilya Fyodorov, chief economist at the brokerage firm BKS. At that time, the central bank will also present its updated medium-term forecast for the Russian economy. Fyodorov even considers a pause in interest rate cuts possible at that time. The business portal RBC notes that such a pause is practically out of the question for tomorrow due to Putin’s clear stance. This article was prepared for the German-Russian Chamber of Foreign Trade.
