The main problem of the Russian economy
The Central Bank of Russia has highlighted a pressing obstacle to growth: a persistent shortage of labor. This assessment was shared during a joint session of State Duma committees focused on the financial market, budgets and taxes, and economic policy, where the bank’s leadership outlined the current challenges facing the economy.
According to the central bank governor, the real constraint is not a shortage of money but a lack of available workers. This sentiment is echoed in surveys of businesses across the country, underscoring a widespread concern about the labor supply. The Bank notes that the economy is already running near full capacity, with unemployment hovering around 3 percent and some regions reporting even lower rates.
Governor Elvira Nabiullina pointed out a troubling reality: there are hardly any workers left in several sectors, particularly those that have surpassed pre-crisis levels. Mechanical engineering and the chemical industry were named as examples where the shortage is acute. The message was clear: to sustain growth, it is essential to boost labor productivity and improve the efficiency of the workforce across industries.
In parallel, policymakers stressed the importance of enhancing productivity as a driver of further improvements in key macroeconomic indicators. The dialogue underscored that structural reforms and investments in skills, training, and technology are necessary to close the gap and support long-term expansion.
Possible increase in interest rate
The head of the central bank did not dismiss the possibility of another rate hike before year-end. The regulator had previously increased the key rate to 15 percent from 13 percent in October, aiming to temper inflation and stabilize financial conditions.
Nabiullina indicated that the rate could stay at that level for the remainder of the year, though a further rise could not be ruled out if inflation pressures intensify. The tightening has redirected liquidity toward banks, with more cash circulating and deposit offers becoming more attractive again, presenting yields of around 13–14 percent. This combination creates what the central bank calls a favorable return on risk-free investments, shaping the stance of savers and lenders alike.
The central bank also signaled intentions to ease policy in 2024 as inflation cools. The rationale is straightforward: lower inflation lays the groundwork for longer-term funding, enabling banks to extend credit for sustainable investments and longer horizons. Nabiullina stressed that even with a cut in the key rate, if inflation remained high, banks would hesitate to lend long-term because inflation expectations would still dominate lending decisions.
Inflation peak passed
During the Duma committee meeting, Nabiullina reiterated the plan to maintain a tight monetary stance for several quarters with the goal of inflation returning to the 4 percent target by the end of 2024. She warned that continued sharp restraint could slow lending, highlighting the trade-off between price stability and credit growth.
At the same time, she asserted that the inflation peak occurred in the third quarter of 2023 and that subsequent months should see inflation ease toward the target. She explained that the annual decline would begin in spring, driven by a base effect from the previous year’s mid-year period when inflation was relatively low. The discussion also touched on the ruble’s weakness: its weakening in the summer months was attributed more to domestic inflationary pressures than to external shocks, reinforcing the case for inflation-focused policies to support currency stability.
Central Bank and Ministry of Finance agreed on cryptocurrencies
Nabiullina reported a convergence of views between the Bank of Russia and the Ministry of Finance regarding cryptocurrencies. After past disagreements, both agencies are now pursuing a common stance that treats digital assets as a potential tool in cross-border payments, subject to robust investor protections and responsible issuance by qualified entities.
The regulator supports using cryptocurrencies as part of controlled experiments in international settlement and notes the necessity of developing the capacity to issue digital financial assets for credible issuers, with safeguards for investors. The discussion traces back to 2022, when the Bank warned that unregulated crypto activity posed risks to citizens. The Ministry of Finance, advocating for regulation, warned that a ban could drive activity underground, increasing fraud and the informal economy.
The evolving policy framework envisions regulated pathways for crypto assets, balancing innovation with safeguards that protect consumers and financial stability. This approach aims to foster a stable environment where new digital finance tools can be tested and scaled in a manner that supports legitimate use cases while mitigating risk to households and institutions alike.