Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 19 December 2025

Good evening. Today, we have made the decision to cut the key rate to 16% per annum.

Inflation has been slowing down. In November, this deceleration was even slightly faster than we expected, which was associated not only with persistent, but also, to a great extent, one-off factors. That said, in the coming months, prices will be considerably affected by the VAT rise and the increase in administered prices. The resulting impact is yet to be estimated. We take all of the above factors into account when determining the pace and scale of the key rate reduction.

I would now dwell on the reasons behind our today’s decision.

Firstly, inflation.

Current price growth rates have been volatile in recent months. They were up in October but dropped in November. Goods with highly volatile prices, namely fruit and vegetables as well as petrol, have largely contributed to these dynamics. Petrol prices have stabilised, following their rapid growth, and have even edged down owing to the measures taken by the Government.

According to weekly data, annual inflation has already decreased below 6%. The full-year price growth in 2025 will be at the lowest level over the past five years.

Current growth rates of underlying inflation measures were also down to around 4% in annualised terms in November. However, it would be premature to draw conclusions about whether this deceleration is transitory or long-term based on one month’s data. On average, over October–November, current growth rates of most underlying inflation measures remained slightly above 4%.

In addition, inflation will temporarily accelerate in early 2026 due to the VAT increase. In December, certain companies have already started to adjust their prices considering this factor, although its main effect is yet to materialise. By contrast, some companies are seeking to sell out their stocks faster at the end of the year, ahead of the VAT rise, offering customers attractive prices, which might have a temporary disinflationary effect.

In January, prices will also be impacted by additional indexation of housing and utility tariffs and other administered prices. Given the updated indexation parameters, the influence of one-off factors on inflation might be more significant next year than we estimated in October.

The VAT increase affects a wide range of goods and services, and therefore may influence inflation expectations. In November–December, they were up both among households and, more notably, among businesses.

The rise in inflation expectations is a tangible factor, as they influence not only decisions on purchases, but also the attractiveness of interest rates. After all, when deciding to deposit money, take out a loan, or invest in a new project, people and companies, explicitly or implicitly, weigh the expected return against the expected price growth. This means that we have to consider this factor when making decisions on the key rate in order to maintain monetary policy as tight as necessary to bring inflation to the target.

Secondly, the economy.

The economy continues to return to a balanced growth path, which is evidenced by the decline in inflation. According to our estimates, it will cool from its overheated state in 2026 H1.

High-frequency data show that economic growth slightly sped up in 2025 Q4 as compared to the previous quarter, including in mining and quarrying and in manufacturing. Consumer activity growth remains strong, having accelerated following its smooth slowdown in 2025 H1. This trend is particularly pronounced in public catering and a number of other services, as well as in the non-food segment. In recent months, consumption growth has been additionally fuelled by the expansion in demand for cars in anticipation of the rise in the recycling fee.

The October–December business surveys show that companies are more optimistic about future demand for their products, as compared to the previous quarter. This is associated with the easing of monetary conditions that happened earlier. However, the dynamics remain highly uneven across industries.

Investment activity growth has been mostly decelerating, while also demonstrating mixed trends across sectors. Over the past year, there has been a slight decline, for example, in construction where investment levels were record high in the previous years, as well as in transport and certain mining and quarrying sectors. Nevertheless, the investment volume in the economy as a whole remains close to the three-year highs. In January–September 2025, fixed capital investments totalled over ₽26 trillion. In real terms, this amount is at a par with the one recorded over the same period last year.

As for the labour market, its tightness has been decreasing, albeit slowly. Surveys show that the percentage of enterprises experiencing labour shortages has been gradually declining. It is already notably below its peak levels observed last year. Companies are planning to raise wages more moderately in 2026. Certain industries have been registering growth in part-time employment, although it remains low in the economy as a whole.

Thirdly, monetary conditions.

They remain tight but have slightly eased overall, compared to October.

Amid decreasing loan rates, corporate lending continued growing rather quickly in October–November. Moreover, this growth is observed across a wide range of industries and companies. Mortgage and car lending also continue to expand, albeit less notably than corporate lending.

The acceleration in credit growth is a natural response to monetary policy easing. It is important that the Bank of Russia maintains monetary conditions as tight as necessary to ensure balanced growth of lending, compatible with sustainably low inflation. 

As we have already noted, deposit rates have stopped declining. They have even edged up for some maturities, as compared with early October, maintaining the attractiveness of ruble deposits. Concurrently, households are becoming increasingly more interested in other forms of savings, including investments in the securities. Saving activity stays at a historically high level overall.

Briefly about external conditions.

Prices for key Russian exports are running lower than forecast by the Bank of Russia. This is attributable to both deteriorating conditions in the global markets of certain commodities and the impact of sanctions.

Despite worsening external conditions, the ruble remains strong. The first factor is the effect of the fiscal rule. The second one is the influence of tight monetary policy, which supports modest imports growth, thus reducing demand for foreign currency. Owing to high interest rates, ruble assets remain more attractive than foreign ones. Furthermore, demand for foreign currency is contracting due to the measures ensuring import substitution and supporting domestic producers. These are structural factors whose impact materialises over a longer-term horizon. In the short run, the ruble exchange rate is affected by expectations regarding geopolitical developments.

The ruble appreciation that happened this year continues to produce a disinflationary effect, although it has already become weaker.

I will now speak of risks.

Proinflationary risks prevail over the next year’s horizon. Risks stemming from tight labour market, characterised by labour shortages, remain high. Another significant risk is the increase in inflation expectations, caused by the VAT rise and tariff indexation. Furthermore, there are risks related to external conditions, in particular oil prices. Finally, credit dynamics may also carry risks. If the expansion in lending, and accordingly, in money supply, is excessive, this might hinder the economy’s return to a balanced growth path and exert pressure on prices. Geopolitics is also a considerable source of uncertainty.

That said, we take into account disinflationary risks as well, particularly the risk of a substantial slowdown in domestic demand growth.

Finally, regarding our future decisions.

The scale and pace of further monetary policy easing will depend on the sustainability of the inflation slowdown and the dynamics of inflation expectations. Should proinflationary risks materialise, we might need to make pauses between key rate changes.

This means that the key rate will not be lowered ‘on autopilot’. We will regularly monitor all key indicators of the Russian economy and external environment and adjust the key rate path accordingly, if necessary. In the coming months, we will pay close attention to how prices as well as households’ and businesses’ expectations respond to the VAT increase and tariff indexation and how the situation unfolds in terms of other proinflationary and disinflationary risks, that is, whether they become stronger or weaker.

Sustainably low inflation that we are striving to achieve is the only way to ensure moderate interest rates for all and a predictable environment for making long-term investments and plans. This paves the way for stable economic development and people’s welfare growth.

This is what we hope to see in 2026. Best wishes for the coming New Year!

Thank you for your attention.

Q&A FOR THE MEDIA

QUESTION from TASS:

Would you tell us which options the Board have focused on today?

Elvira NABIULLINA:

This is a standard question. We have considered three options: keeping the rate unchanged, reducing it by half a percentage point, and reducing by one percentage point.

Those who advocated keeping the rate on hold stressed that it was too early to view the trend towards slower inflation as sustainable in view of its volatility in recent months (as I have mentioned, it was volatile between October and November). If we look at one month only, it is really hard to make a judgement regarding how sustained the trend was, given that inflation drivers that are set to materialise shortly – I mean the VAT rise and higher [administered] rates. Focus also turned to significantly accelerating lending and persistently high inflation expectations.

Those suggesting a greater magnitude [of monetary easing] believed that current inflation slowdown is sufficiently sustainable.

However, most Board members felt a more balanced, more cautious move was required – cutting the rate by half a percentage point.

QUESTION from Rossiyskaya Gazeta:

According to inflation data for November and early December, particularly if seasonally adjusted, it may indeed be the time to congratulate the Bank of Russia on its long-awaited victory over inflation. Is it indeed the time for congratulations, or not quite yet? Have we come most of the way or not yet? If we are indeed approaching or have passed the middle, how rapidly is the distance expected to decrease between the nominal and neutral rates?

Elvira NABIULLINA:

We have definitely come most of the way, but the second part is always harder – any marathon runner knows this well. You may remember this comparison of our key rate movement [with a marathon], and not only of the rate, but the broader economy: this is indeed long-term movement.

It certainly takes more than one month of low inflation – therefore, we are more focused on three-month, rolling, seasonally adjusted inflation, rather than monthly inflation, and you can see that from our publications. Its recent three-month average is 5.2% and above our target.

Add to this the factor of inflation expectations, and it is clear why we are so cautious in rate-cutting: we have to account for stubbornly high inflation expectations. According to our key rate forecast, as you know, we expect the key rate to become neutral in 2027.

QUESTION from RIA Novosti:

Today, in light of the Bank of Russia’s rate cut, many major banks have moved to cut their unsubsidised mortgage rates. In this context, which key rate will trigger a rebound in the mortgage market, and can this be expected as early as next year?

Elvira NABIULLINA:

We are already seeing an expansion in unsubsidised mortgages. True, the share of subsidised programmes, primarily Family Mortgage, remains dominant. However, we note a response of unsubsidised mortgages even to previous rate cuts. We believe this trend will continue as inflation and the key rate both fall. A solid rebound will probably occur once the key rate is close to its neutral range.

QUESTION from RBC Online, South and North Caucasus, Krasnodar:

Effective 1 January 2026, VAT is up to 22%. How does the Bank of Russia take into account this increase in its decision today? How can the regulator offset the potential price increase [on the back of the VAT rise]?

Elvira NABIULLINA:

We took into account that the VAT rise may make a significant impact on prices in coming months. I should say that this move has affected inflation expectations, but we have yet to quantify its ultimate impact.

We will take all of the above into account when setting the pace and path of rate reduction. We believe that our tight monetary policy enables the economy to reduce the pass-through from the VAT increase into prices as well as its secondary effects – and thus check inflation.

Alexey ZABOTKIN:

I have two small additional comments. Both the forecast and the October decision account for VAT increase effects. In other words, the October move had already factored in the VAT revision.

As a second consideration, let me stress again that the VAT rise over a medium-term horizon is set to have a disinflationary impact over the course of the whole year if compared to the non-rise option seeing a higher budget deficit.

QUESTION from Bitkogan project:

As regards blocked assets, some brokers offer decentralised paper-to-paper exchange. What is your opinion about the prospects of this exchange? In the event that this exchange never happens or remains incomplete, what will be the regulator’s decision to unblock Russian assets?

Elvira NABIULLINA:

We have not received any official documents on such an exchange, and it is probably premature to speak of any additional action.

QUESTION from Interfax:

Do you think a surge in prices is a possibility only in January next year or in later months as well? Do we then understand correctly that your monetary policy decisions are set to remain cautions and exclude abrupt movements?

And another question, if I may. Has the Bank of Russia quantified the impact of the VAT relief reversal for card transactions? Do you agree with Sberbank’s estimate that this will cost the sector ₽200 billion? Will you recommend that banks back down from passing the costs on to customers, or is this at the discretion of banks?

Elvira NABIULLINA:

Indeed, we take a fairly cautious approach to our rate decisions given the current balance of risks skewed toward inflation. Our key rate forecast sees a reduction next year, but we will proceed cautiously, considering the inflation drivers in place including high inflation expectations.

As for inflation trends next year, prices may indeed accelerate slightly in January following the VAT increase. Yet we expect a continued decline in core inflation after this surge, and that its underlying components will stay close to 4% in the second half of the year.

Current rates of price growth may have sped up slightly in October, a time when administered rates are indexed, but we consider this a transient effect.

As regards the second question about acquiring, we look to the Finance Ministry to soon clarify which operations will be subject to VAT. Only then can more accurate estimates be made, but overall it is clear that the reversal of tax privileges may affect the payment market. While there is certainly a risk that banks might pass their costs on to the rates, this movement should be taken into account as a whole in the context of tax changes. As Mr Zabotkin has said, in the choice between raising taxes and an increased budget deficit, the former comes with far less pro-inflation effects than the latter.

The tax increases will pass through to prices in the same way as overall economic trends unfold: economic agents make independent decisions, guided by demand and competition among other factors. And speaking of competition, it is in place in the payment market. This is why I think that banks will take this into account.

QUESTION from Nezavisimaya Gazeta:

Let me go back the inflation target and ask this sort of summarising question. Why have we so far failed, despite the sustained period of really tight monetary policy, to deliver on this 4% target? What stands in the way? What is the stage at which the failure occurs, in your view?

Elvira NABIULLINA:

In our opinion, there is no failure. In recent years we saw inflation risks materialise and inflation accelerate.

As a reminder, monthly price growth at the end of 2024 was above 14% in annualised terms. In other words, the start to 2025 was marked by very high inflation. We did not set ourselves the objective of meeting the target this year for the reason that this would not be a soft landing and there would be the risk of a significant downward deviation from target next year. This is why our forecast for end-year inflation was 7–8%, if you remember.

A more rapid deceleration in inflation is driven by tight monetary policy. Hence, we believe that the policy is working, and growth of credit is moving into better balance and according to plan (considering that the key rate primarily influences credit), as are the rates of economic growth.

QUESTION from URA.RU (Yekaterinburg):

In recent years, the Bank of Russia successfully navigated the 2022 shock and quelled inflation, but the economy then entered a period of structural transformation. As we are approaching the end of the year, how do you balance the need to contain inflation, on the one hand, and the need to incentivise lending and investment to deliver growth, on the other? Which of these counterweights is your absolute priority now?

Elvira NABIULLINA:

Our absolute priority is price stability. It is not in conflict with the objectives of lending and investment development to enable growth. On the contrary, it is a prerequisite for growing lending and investment as well as steady and sustainable economic growth.

Importantly, sustainably low inflation is much more than one governmental agency’s objective, it is rather the basis for normal economic development, which includes long-term lending and long-term investment in production development. This is why it is imperative we leave this long period of high inflation behind us as soon as possible.

Incidentally, lending never stopped over the last three years, with solid growth since 2023, including this year. The fresh data as of early December suggest that the loan portfolio (what economist call claims on the economy) totalled ₽155 trillion, which means that the portfolio has grown 55% since 2022. Growth in real terms was also notable. After adjusting this pace of growth for the impact of inflation, lending was up 25% over the three years.

Crucially, this is more than short-term loans. In this number, loans with maturities of more than three years account for over 45%. These types of loans are usually taken out for investment. This substantial growth in lending was largely a driver of an equally sizeable rise in investment.

In my opening remarks I spoke about investment. We need to carefully look at the numbers: for the first three quarters of 2025, fixed capital investment totalled ₽26 trillion. This is up 10% from last year. Adjusted for price growth, we have a positive increase of 0.5% in real terms. This growth might look small, but I want to stress that investment is already at a record high, and all this will support the expansion of production capabilities.

When speaking about the growth rate and the level of investment, my colleagues cite an example of a car: to go fast, the driver just needs to accelerate once and then maintain the speed, rather than continuously increase it. In this analogy, the speed is not the growth of investment, but the level of investment achieved. It is the level of investment as well as its productivity (that is by how much investment increases labour productivity) that in large part determines gross domestic product growth.

QUESTION from Reuters:

My question is about the Bank of Russia’s claim against Euroclear. Do you already understand which assets may be foreclosed? Are these client assets of the depository? In the context of the EU summit decision, may the Bank of Russia reconsider, or at least soften, its position on further lawsuits to be filed against European banks?

Elvira NABIULLINA:

No, we do not yet intend to withdraw our claims.

As for the first part of the question – how a court decision will be executed and damages paid – this is to be determined after the court decision is made and once this decision has become final and binding.

We are also considering the possibility of protecting our interests, both in international courts and arbitrations, to seek subsequent enforcement of such court rulings in other states.

QUESTION from Frank Media:

You have mentioned that VAT will be imposed on bank card transactions from 2026. What is your overall opinion about this? Are you now seeing more cash payments than card payments? Do you think there are risks of rising payments in cash?

Also, will you please give us another clarification as to the record growth of corporate lending in October, and probably in November. What was it driven by? Do you think this is above the indicator needed to deliver on the inflation target?

Elvira NABIULLINA:

As for the cancellation of the VAT relief on card operations, I consider this a fact of life – the decision has been made. Yes, this may propel payment rates slightly higher, but this decision should overall be treated as part of a comprehensive tax reform. These tax changes were introduced due to higher budget expenditure. The alternative option was increasing the budget deficit, i.e. public debt.

Based on the comparison of these two options in terms of our mandate, the VAT rise is surely more disinflationary than the alternative.

On the risk of people moving to cash payments following the introduction of VAT [on card transactions], I do not see a risk at all, with individuals being already accustomed to cashless payments. They are fast and convenient, and they are definitely the preferred payment method. As of today, statistics do not suggest any reduction in cashless payments either.

As regards corporate lending, its growth did accelerate, and this may be partially attributed to seasonality. In Russia, corporate lending, especially among recipients of budgetary funds, normally grows in the expectation that allocated funds are arriving shortly. However, this is also linked to overall monetary easing.

Admittedly, the growth rate is nothing like a record high. Corporate lending really accelerated after the first half of the year, but its expansion is slower than in 2023 and 2024.

Regarding the implications for inflation, it is overall lending growth rates that we are focused on. Incidentally, retail lending posted lower growth than was expected early this year. Overall, we are more focused on monetary aggregates than the pace of lending growth. It is very important to understand how many monetary resources flow through the budget channel. Therefore, this is always a comprehensive analysis.

We should certainly watch how great the growth of our monetary aggregates is, considering that a large share of corporate loans is insensitive or low-sensitive to loan rates.

QUESTION from NTV Delovye Novosti:

To conclude last years’ final meeting, you said that you would ask Santa Claus for balanced rates of economic growth and slower rising prices. As long as the Bank of Russia has never raised the key rate this year, it looks like your wish came true, or rather it is beginning to. What is your new wish? Your previous wish seems to have been fulfilled.

Elvira NABIULLINA:

It is either a matter of the wish coming true or our policy having worked, but we have really delivered a strong deceleration in inflation. The economy is transitioning to balanced growth rates.

For the next year, I would wish that we do not only see 4% inflation, but attain sustainable price stability. I would wish that households and businesses feel the benefits of low inflation.

QUESTION from Law and Finance project:

While inflation is indeed slowing more rapidly than expected, risks to the financial system, on the contrary, seem to be mounting, primarily fuelled by increased corporate debt. How important is financial stability for the Bank of Russia now? Does this issue affect your rate decision?

People would also like to know how resilient the domestic banking system is and whether it is safe to keep money in banks. What would you say to them?

Elvira NABIULLINA:

Financial stability issues are always our priority, and always matter. Today, we see no threats to financial stability. Yet, as you know, our Financial Stability Review is released every six months, so we look into the areas of vulnerabilities where they might emerge. It is imperative that we take action to prevent them. To this end, we look into leading indicators among other data.

Ultimately, my answer is that we do not see such risks now, and this was not consequential for our rate decision.

While on the subject of stability, the banking system remains fairly stable. We record some growth in non-performing loans; at the same time, the share of non-performing corporate loans is up very slightly at around 4%, which is not much. The banking system enjoys solid capital, and we believe there are no questions in this regard.

QUESTION from RBC:

It has recently emerged that the EU Council did not approve the seizure of blocked Russian assets. Do you explain this by, among other things, your position, meaning that you intend to go to international courts if necessary? Do you then think that your retaliatory measure worked?

Also, another short question on Euroclear. Did you seek a closed hearing? If you did, what risks did you want to avoid?  If it is indeed going to be a closed hearing, how do we find out what is happening there? How will you communicate with the market on this issue?

Elvira NABIULLINA:

It is difficult for me to comment on the arguments that prevailed. You have probably seen the various arguments discussed in the media. First of all, I think that this decision would undermine the foundations of how the global financial system operates – it is obvious.

 On the procedure for considering our claims, it is only natural that we requested closed-session mode. Our request is due to the type of information to be submitted, which is bank secrecy.

As for the stages of consideration, our standard practice is to reserve comment on the progress of our court cases.

QUESTION from Moskovsky Komsomolets:

Following up on the topic of Euroclear and your lawsuit against the depository, many Russians wonder why it was necessary to wait almost three years before filing, given that Euroclear had more than 18 billion worth of assets in Russia, according to their chief risk officer. Why did you wait so long?

Elvira NABIULLINA:

The reason we filed a lawsuit now and not before is the circumstances that would be appropriate to disclose at a later stage.

As I have said, and I want to emphasise once again, what happens next, how the court decision is enforced, will be determined after the court decision has become final and binding.

QUESTION from InvestFuture project:

At the moment, we can see that inflation is slowing and the rate reduction cycle is beginning, but inflation expectations are going up. In this context, which is the more important consideration for you at the Bank of Russia: inflation movement or inflation expectations?

On the subject of assets, I have a brief further comment: how can the EU’s indefinite freeze affect a new cycle of exchange of frozen investor assets?

Elvira NABIULLINA:

On the second question, the answer is brief: clearly, it does not help solve these issues.

On the diverging inflation and inflation expectations, this is a good question. Indeed, their divergence complicates the assessment of the situation, making it much more difficult to make judgements about the sustainability of some trends than if these two were co-directional.

These diverging trends that you mention made up a considerable part of discussion at the Board, between those who spoke for the no-change decision and who proposed a more aggressive move.

We believe that today’s high inflation expectations and their slight rise, especially that of business expectations, make a response to the expected VAT rise, changes in utility rates and other one-off drivers of inflation. We view this as an ongoing material inflation risk.

What worries us is not just the increase in inflation expectations, but that they could become entrenched this high. This explains the moderate magnitude of lowering the key rate, among other reasons.

Separately, our decisions, our monetary policy, become more sensitive to inflation expectations when they are high and unanchored. When inflation expectations are unanchored and high, inflation may give a much stronger response to premature and excessive easing. Inflation is far more likely to accelerate than if inflation expectations were anchored.

Therefore, yes, we have to analyse this divergence and act accordingly, and this make us cautious.

QUESTION from Udmurtia, Izhevsk:

Why do banks lend at 40% and beyond when the key rate is 16%? What is behind this?

Elvira NABIULLINA:

Yes, this question always arises: bank rates are higher rates than the key rate. But what we should pay attention to is that while there are indeed these rates, they only come with some loans that are far from being mass-market products.

In October, average rates on corporate loans ranged between 15% and 18% depending on maturity.

A special case is developers, whose loans are covered by escrow accounts, and the rates are in the vicinity of 10%. Based on our analysis, the rates above 24% come with less than 4% of corporate loans.

It is only natural that household loans are more costly: 23% on loans for six months to a year, and 17% for more than one year, on average.

Why are the rates high? They are caused by risks and costs in bank lending.

Let us take a look at corporate credit. If a loan is requested by a company that enjoys sustainable sales and low debt, it can count on a lower rate than a company that is barely making ends meet. Therefore, the range of rates on corporate loans is rather wide, and this can clearly be seen from the bond market. If you look at yields on high-ranking bonds, they are now about 15%, and those of the lowest ranking are almost 30%. That is a huge difference in yield.

This is also true of loan rates and, incidentally, the same is true about household loans. If we look at mortgages and credit cards, their rates are different (mortgage rates are lower due to lower risks).

QUESTION from Anna_finance project:

I have a question about non-governmental pension funds (NPFs). In NPFs, remuneration includes a management fee (currently 0.6%) and a success fee (20–25%). With non-governmental pension funds investing in conservative assets, would you say that the success fee is too high and that it eats up returns on individuals’ pension savings; the returns are already low at that, due to the preference to conservative assets?

Elvira NABIULLINA:

It is important how we approach remuneration on non-governmental pension funds. It is essential that balanced remuneration is in place and that it creates the right motivation.

Now, the right motivation is when non-governmental pension funds invest in the assets that bring future pensioners the most benefit in terms of profitability and risk management. Therefore, we have moved away from the old model in which remuneration did not correlate with the quality of management.

Since last year, as you correctly say, there have been two parts of remuneration: one for management, and the other for success. The reward for success is tied to the average yield on three-year deposits – it is similar to a benchmark. If a fund earns more, the reward is higher.

The management part is to be reduced by law, beginning in 2027, once NPFs have adopted the new system. We will watch the funds’ compliance with this new remuneration system and will come up with adjustments if necessary.

QUESTION from Economikal Telegram channel:

This year, has there been a change in the risk of default on bonds in the business segment relative to the previous year? Has it grown? What are the Bank of Russia’s default expectations as to the business segment, rather than the banking sector, for the next year?

And further to the business segment, another short question. Regarding VAT in acquiring, were there any ideas of VAT relief at least for small enterprises? When small enterprises begin paying VAT, they will put this down to costs. They cannot make up a purchase ledger, or sales books, to at least break even, or receive payments from the budget as major or medium-sized businesses do.

Elvira NABIULLINA:

Let me first answer the question about debt. We do not expect the tight monetary policy to cause a system-wide increase in non-performing loans. Yes, defaults will always happen. We closely monitor the quality of corporate debt. The overall quality of loan servicing remains high, despite the higher rates, higher interest for companies (based on historical data). Admittedly, the situation varies across industries, and there are different borrowers.

Banks’ loan portfolios now include a larger share of companies which banks qualify as yellow-zone borrowers, i.e. closely watched borrowers.

But the share of the most troubled loans (quality categories IV–V) has grown since the beginning of the year by only 0.2pp to 4% (this is what is usually called a red zone).

Things are indeed worse in the small business sector, where the share of companies unable to service loans is up to 9.8% since the beginning of the year. We recommended that banks approve loan restructuring requests to ease debt servicing burdens. But we refrain from asking banks to create additional provisions if the odds are good that their borrowers can become solvent.

The second part of the question about taxation in acquiring is rather a question for the Government. As for the load on small and medium-sized businesses, they are covered by new legislation, effective from October, on loan repayment holidays. Medium-sized companies are entitled to a grace period even if their revenues are unchanged. You may remember that such programmes were previously available and were linked to revenues, as were those for households linked to incomes.

What can we see? Over these two and a half months, there is a fairly large number (17,000) of applications for loan repayment holidays filed to banks under this law, but not only under this law. What makes it a good law? It encourages banks to offer their own restructuring programmes, and we can see that this restructuring is ongoing.

Undoubtedly, we should take into account that a further rate reduction under our baseline scenario is rapidly translating into lower interest costs. This is thanks to the floating rates that extend to a significant portion of loans, including to SMEs.

QUESTION from Vedomosti:

Why was the rate of inflation in December, in the early weeks, so low? It was a mere 0.05%, though many had warned of a spike ahead of the VAT increase. This is my first question.

The second is, how high are in your view the risks of a more pronounced slowdown in domestic demand? Will it require further impetus?

Alexey ZABOTKIN:

Let us wait until the full-month figures arrive. Our weeks are not always aligned to a full month.

But one of the explanations is the one that the Governor has presented today. Businesses are indisposed to carry large stocks over to the end of the year, as they would then be covered by 22% VAT next year. Accordingly, this decrease in stocks may be a significant driver for prices in November and December. If this is indeed the case, prices will reverse their earlier losses beyond the end of the year.

Accordingly, to draw conclusions about inflation in November–December, it is necessary to wait not only for the full December figures, but also to see what happens in January–February.

In terms of demand, aggregate demand in the economy remains positive. Otherwise, we would have negative full-year GDP, which is not the case.

QUESTION from Krasny Sever (Vologda):

The rollback of subsidised mortgages was intended to cool down the market and stabilise housing prices, among other things. Meanwhile, property prices are still rising. Look no further than Vologda, where a one-room flat sells for at least ₽4–5 million. Why is that?

Elvira NABIULLINA:

The situation varies greatly across regions, and we can see that some of them have even seen a slight decline in [home] prices this year. Many regions report a notable deceleration relative to the previous year.

Let me highlight the Krasnodar Territory – which is traditionally one of the most overheated regions in terms of the housing market. In the nine months to September prices gained 4.3%, which is less than inflation. Similar growth was reported by the Vologda Region. Nationwide, new housing prices rose slower than last year.

Why the stubborn growth in the prices? First, this is explained by demand, which remains considerable. We rolled back the preferential mortgage lending programme for everyone, but Family Mortgage is quite sizeable, as are Far Eastern Mortgage and other remaining programmes.

I have mentioned that people are now more willingly taking out unsubsidised mortgages, and overall demand for housing remains quite decent. Of note, people buy flats not only with home loans, and demand for houses is not only seen through mortgages: people take instalments. Outstanding instalments for housing stand at ₽1.5 trillion, which is also the realised demand unaccounted for by the growth of mortgage.

We can see prices for homes under construction are rising on the back of a rebound in demand. The demand has indeed picked up markedly compared to the end of last year and the first half of this year.

What we do to slow the prices? Certainly, we have to ensure labour productivity rises in the housing sector so that the costs in the sector do not rise the way they did earlier years.

QUESTION from PRO.FINANSY project:

Preferential mortgage programmes are still drawing the most attention. As you have just said, they are influencing the expansion of demand and sustain the price level. Eventually, the costs under such programmes pass on to other market players through higher rates, fiscal spending and inflationary pressures.

Is it fair to say that preferential mortgages, including family programmes, drive up prices by boosting demand, and spur not only property prices, but also the level of prices in the broader economy?

In what conditions could preferential mortgages exist without the notable market distortions we are seeing in terms of prices, affordability and inflation implications?

Elvira NABIULLINA:

You are absolutely right, the costs of any benefits have to be borne by someone, and any market works like this. Any subsidised programme impacts demand and prices. But it is all about the scale. A programme of modest scale would come without distortions in the market. Therefore, we have always argued that subsidised programmes, in housing or other areas, should be very targeted and focus on priority areas so they trigger no market distortions.

We could see that large-scale subsidised mortgages accelerate demand very rapidly to a point when it is physically impossible to increase the supply of real estate just as rapidly; this leads to flat prices rising, and this sets off acceleration in headline inflation. This comes as a result of increasingly strengthened competition for labour, driven especially by staff shortages, tougher competition for material and equipment, and all this turns into price pressures on the economy.

So, I will reiterate: it is imperative that subsidised lending is targeted to prevent the emergence of distortions.

Family Mortgage is a targeted programme, even if quite large. It is still the key driver of all home loans, accounting for approximately 70% of new mortgage loans this year.

Unsubsidised mortgages will become more affordable as inflation declines. As I have said, unsubsidised mortgages have been picking up recently and will become more affordable as inflation, the key rate and rates in the economy all decline.

QUESTION from Grigory Bazhenov Telegram channel  

Would you say current household and business inflation expectations are in large part inertial, or are they linked to some structural long-term factors that are not fully manageable by monetary policies? If so, does this involve the risk of inflation expectations becoming anchored above target?

Alexey ZABOTKIN:

Yes, indeed, structural factors are beyond control of monetary authorities. However, monetary authorities can definitely make decisions to offset the effects of structural factors and to ultimately ensure a low level of inflation. If households and businesses take note of low inflation, inflation expectations moderate, too, consistent with this low inflation.

Elvira NABIULLINA:

Some say: ignore inflation expectations, make rate decisions in defiance of inflation expectations. But then inflation will accelerate very rapidly. When inflation expectations are high, monetary authorities are obliged to take decisions to tame inflation.

Believe me, if inflation is sustainably low, long enough, inflation expectations will surely go down – no matter what structural factors.

QUESTION from Market Power project:

Retail investors have been requesting some brokers to exchange blocked assets for Sberbank shares. Can you estimate the potential scope of this exchange? What is your assessment of market implications of an arrangement when investor reward is stock rather than cash? Is there a risk of an overhang given that some investors may prefer to sell the securities they receive rather than hold them for long? Could this have a noticeable pressure on Sberbank’s quotes?

Elvira NABIULLINA:

I cannot comment on the first part of the question for the lack of any such information.

As for the potential overhang of supply, there will be no such thing. In the case such transactions ever come about at all. There will be no overhang for the reason that future sales will be restricted.

PHILIPP GABUNIA:

Additionally, one further comment regarding the lack of information. Naturally, we can see that such proposals are coming in. But such transactions would need legal committee approvals, and all the required documents should be in place.

QUESTION from Expert:

On 12 December, at the Раzvivay.RF Infrastructure Congress, businesses proposed a separate rate for public-private partnerships to increase the number of such projects in the industry. What is the Bank of Russia’s attitude to this idea?

Elvira NABIULLINA:

Following up on the answer to the question about preferential mortgage loans, any benefit is paid by someone, and this must be remembered. If we discuss additional benefits to those that apply, then, all else being equal, this would push up the rates for anyone else.

Subsidised programmes are within the Government’s remit, and those currently being implemented are quite large in scale. If the Government considers public-private partnerships a higher priority than other areas, and reallocates subsidies there from other programmes, then there will be no additional effect. However, this is up to the Government.

QUESTION from Rossiyskaya Gazeta:

Will you please share your assessments: what is the point at which the ruble rate is no longer disinflationary and is neutral? Which level would mean its effect becomes pro-inflation again?

Elvira NABIULLINA:

This precise mark is impossible to calculate. This depends on circumstances. It is movement rather than a level that matters more: a strengthening comes with an overall disinflationary effect; a slide from current levels is an inflation driver.

Alexey ZABOTKIN:

Businesses expect certain exchange rate paths. These expectations as to the future exchange are built into prices for goods and services. If the ruble depreciates more than sellers of imports expect, they will raise prices.

That is, the answer is that a pro-inflation effect comes with a weakening of the ruble beyond market and business expectations, beyond what is currently priced in.

Elvira NABIULLINA:

You can see that expectations are important here, not only inflation expectations.

QUESTION from RBC:

My question also relates to the ruble. In the beginning of your statement, you say that both the tight monetary policy and the structural factors are having an impact. As for the second, Maxim Oreshkin said in early December that the ruble rate may be under the influence of mining – far from the most obvious factor, and that Russia is a cryptocurrency exporter, which also drives adjustments to the exchange rate. Do you consider this factor? While current amounts may still be small, which amounts would lead you to take this factor into account? Separately, are the increased recycling fee and full legalisation of imports a driver of the ruble’s strengthening?

Elvira NABIULLINA:

All the factors that Mr Oreshkin mentioned are relevant. It is very appropriate that he highlighted the structural factors. As you remember, last time we talked about factors like import restrictions, import substitution, and support to domestic producers in public procurement. All these drive demand for imports lower – this must be understood.

The share of imports in our GDP is down significantly from 2020–2021, and this is a considerable decline of a structural nature. No doubt, this influences the exchange rate.

As for mining, it is difficult to quantify its impact now, given a significant part of mining is in the grey zone. But in any case, mining emerged before this year, which means that it would be incorrect to link the strengthening of the exchange rate with a surge in mining – mining had been in place before. It just might have ramped up recently.

Nonetheless, mining is really an additional driver of the strong ruble.

Now on to the recycling fee. This year’s appreciation of the ruble can be related to the increase in October last year of the recycling fee, alongside the indexation of January this year, for the reason that these led some imports scheduled for 2025 to be brought forward to 2024. Importers sought to import cars ahead of schedule before the fee increase. This year, car imports have indeed declined considerably relative to last year.

As regards imports legalisation, we have yet to receive additional data to judge on its exchange rate effects. But yes, if this measure works to control the value of smuggled and counterfeit imports, this will contribute to a strengthening of the ruble.

If the volumes in question are all white and all the taxes and duties are fully paid, this will have far less impact on the exchange rate if at all. This is the result of [steady] consumer demand for these imports – it is here to stay. However, this will depend on what happens in terms of the response to import legalisation.

Thank you. Happy holidays! May I wish health and happiness to you, your family and friends, your listeners, readers and viewers – to everyone!