Everything is in order: The Central Bank expects further economic growth

The Russian economy began to grow in the second half of the year, and the pace will gradually accelerate in the future. This was stated by the head of the Central Bank, Elvira Nabiullina, during a speech in the State Duma. According to her, investment activity has been increasing for two consecutive quarters. At the same time, we should not expect a rapid reduction in the key rate in the near future. One of the reasons is preferential loans, which the chairman of the Central Bank called a dead end. Why the Russian economy is growing despite the challenges and what the regulator's harsh signal says is in the Izvestia article.

How the economy is growing

In the second half of 2026, the Russian economy entered an upward trajectory. By the end of the year, GDP will increase by about 1%, Elvira Nabiullina said during her speech in the State Duma with a report on the main directions of monetary policy for 2027-2029.

"The latest data suggests that the pace of economic growth will gradually increase further,— the head of the Central Bank added.

The current growth is largely due to budget expenditures and defense industries, said Oleg Abelev, head of the analytical department at Rikom-Trust. According to him, public investments support the defense industry, infrastructure projects and related industries. According to the expert, import substitution and preferential loans provide an additional impetus, but such sources of growth cannot be considered sustainable: budget opportunities are limited, and subsidized programs are gradually being phased out.

Consumer demand also supports the economy. In the first nine months of 2026, real household incomes increased by 3% year—on-year, and retail trade turnover increased by almost 5%, added Natalia Milchakova, a leading analyst at Freedom Global. As long as wages are rising and unemployment remains at record lows, private consumption will remain a relatively stable component, added Alexander Dzhioev, head of the Macroeconomics and Stock Market Group at Alfa Capital Management Company.

Investment activity in the economy has been growing for two consecutive quarters, Elvira Nabiullina also said. Over the past 12 months, investments in fixed assets (in construction, purchase of equipment, transport and modernization) have amounted to 43 trillion rubles. This is almost a quarter more than five years ago.

At the same time, the head of the Central Bank noted that in physical terms — that is, in the amount of equipment, materials and other investment goods purchased — there was still a decrease of about 10% in the first half of the year. According to her, this is largely due to the rise in the cost of such products: prices are rising even faster than the cost of the consumer basket.

By itself, an increase in investments does not mean that the difficult period for the business is over. Some of the funds are being used to repair and protect existing facilities, rather than expand production, said Andrey Glushkin, Managing Partner of the Main Division and member of the General Council of Delovaya Rossiya. According to him, for sustainable development, it is important that investments lead to an increase in output and lower costs, and not just help enterprises cover current costs.

The growth may also be temporary, warned Dmitry Plekhanov, an analyst at the Institute for Integrated Strategic Studies. According to him, companies have mostly completed previously started projects and adapted to the new conditions, and the launch of new investment programs is hindered by a high key rate.

What prevents the Central Bank from lowering the rate

Even a rapid reduction in the key interest rate will not necessarily lead to cheaper loans if inflation and expectations of further price increases remain high. A sharp easing of policy may, on the contrary, accelerate the rise in prices of goods and long-term loans, warned Elvira Nabiullina. According to her, affordable money is possible only with a steady low price increase.

— When we are called upon to radically reduce it (the rate — Ed.), they expect that interest rates on loans will automatically go down. This is true if, at the same time, inflation is low, inflation expectations are low, and there is confidence that inflation will remain low for a long time. If there is neither one nor the other (as now), then the result is likely to be the opposite. Short—term loans may become cheaper following the key interest rate, but prices will immediately rise, and long-term loans will rise sharply at first, and then they may disappear altogether," explained the head of the regulator.

In the Central Bank's baseline forecast, inflation will return to 4% in 2027, and the "key" will decrease gradually. It will reach the neutral range of 7.5–8.5% in 2029. One of the conditions for this is to reduce the budget deficit: it will allow to increase lending without additional pressure on prices, Elvira Nabiullina added.

Massive concessional lending programs are also hindering the reduction of the key rate. The volume of such loans in Russia is close to 19 trillion rubles, which is about 14% of all ruble loans, the head of the Central Bank said.

In her opinion, the further expansion of such programs brings the economy to a standstill: it increases the burden on the budget and prevents the reduction of interest rates for other borrowers. Since concessional loans are less responsive to the decisions of the Central Bank, the regulator has to restrict market lending more in order to curb overall demand.

Andrey Glushkin agrees with the regulator's assessment. When a significant part of borrowers receive money on special terms, the key one has a weaker effect on overall demand, he explained. However, it is wrong to reduce all the reasons for expensive loans to preferential programs: the cost of money is also affected by inflation expectations, production constraints and rising costs, the expert added.

Nevertheless, subsidizing rates also increases budget expenditures, Dmitry Plekhanov recalled. With a high key interest rate, the government has to limit other support measures, which further cools the economy.

When loans will become more available

Sustained monetary policy easing will not begin until the second half of 2027, Oleg Abelev believes. By the end of next year, the key figure, according to his estimates, could be 10-12%. Chief Economist at the Institute of Growth Economics. Stolypin's Boris Kopeikin is even more critical. He believes that the rate will drop to 10% no earlier than 2028.

Dmitry Plekhanov also predicts a longer period of tough politics. According to him, from 2023, the real rate of the Central Bank ("key" minus actual inflation) remains above 5%. Over the past three years, its average value has been 9.2%, although in 2013-2021 the indicator was mostly around 1.7%. The Central Bank expects a return to the neutral level of the real rate of 3-4% by 2029, so the current cycle of tight policy may last for at least six years, the analyst explained.

Forecasts for economic growth for the next year vary. Olga Belenkaya, Head of Finam's Macroeconomic Analysis Department, expects GDP to grow by 0.9-1.4% by the end of 2027. Mikhail Shulgin, chief analyst at the Rosgosstrakh Life Investment Analysis Center, and Alexander Dzhioev consider an increase of 0.5-0.6% to be more realistic.

In any case, the market has received a rather harsh signal: the Central Bank expects a gradual acceleration of economic growth, but it does not promise a quick return of cheap loans. According to the head of the regulator, holding a high "key" is a painful but necessary decision.