The Bank of Russia presented an updated monetary policy trajectory, basing it on four possible scenarios for economic development through 2029. The key signal for markets is that the regulator officially allows for the key rate to return to extreme levels in the event of a risk scenario, which directly affects the cost of borrowing and the attractiveness of ruble-denominated assets.
New procedure: the rate will take effect on Wednesday
The Central Bank's Board of Directors is changing the regulations for applying the rate. Decisions will still be made on Fridays, but the new value will take effect not from Monday, as is currently the case, but from the nearest Wednesday. This is a technical but important change: it gives market participants additional days off to adjust positions, reducing volatility at the start of the week.
The regulator emphasizes that the full effect of a rate change on demand and prices manifests only after 3–6 quarters. Over a horizon of 1–1.5 years, in the absence of new shocks, the Central Bank is capable of returning inflation to target even if it temporarily deviates.
Inflation target and review horizon
The target level for annual inflation remains unchanged at 4%. Within the framework of the current monetary policy review, which is planned to be completed by 2028, the regulator will analyze the prerequisites for a possible reduction of the target. If a decision is made, it will be announced several years before the actual change — this approach is designed to stabilize the inflation expectations of businesses and households in advance.
Four scenarios: from soft landing to shock
Baseline scenario assumes a gradual rate reduction: 14.5–14.6% in 2026, 10.5–12.5% in 2027, 8–9% in 2028, and 7.5–8.5% in 2029. Inflation will slow to 6–7% next year and reach the target of 4% by 2027. GDP growth in 2026 is expected in the range of 0–1%, then 1.5–2.5% annually.
Disinflationary scenario — more optimistic: the rate will drop to 9–11% in 2027, inflation to 3–4% already in 2027, and GDP will accelerate to 2.5–3.5%.
Pro-inflationary scenario — less comfortable: the rate in 2027 will remain at 13–15%, inflation at 4.5–5.5%, and economic growth will slow to 1–2%.
Risk scenario — the most severe. Here, the Central Bank projects a rate of 19–21% in 2027, inflation of 11–13%, and a GDP decline of 3–4%. In 2028, the rate will remain at 14–16%, and only by 2029 will recovery begin with economic growth of 2–3%.
Budget and cash: new restrictions
The regulator acknowledged that the fiscal impulse in the coming years will be stronger than previous estimates. This means less room for policy easing: expanded demand from the state with limited resources requires more restrained dynamics in other components of domestic demand.
Separately, the Central Bank noted the growth of cash in circulation in the first half of 2026, exceeding the levels of 2024–2025. This is associated with lower deposit rates and citizens' desire to have liquidity in case of disruptions to cashless payments. The regulator considers this process natural and not contradicting the long-term trend toward reducing the share of cash.
My view: the publication of four scenarios is not just a forecast, but a tool for managing expectations. The market is currently pricing in the baseline trajectory, but the risk scenario with double-digit rates until 2028 is a serious signal for investors in ruble bonds and crypto assets sensitive to liquidity. Given high uncertainty over the budget and external shocks, I would not rule out that the actual trajectory will be closer to the pro-inflationary scenario than to the baseline.