8 August 2026

The Central Bank is sending out distress signals, but it’s too late: the key interest rate has stopped working, the State Duma is introducing price controls and returning to the terms of Karl Marx, and Putin is preparing to include individuals from the Russian Forbes list in the new investment cycle.

The Central Bank cut the rate by 0.25 percentage points. This news has many layers. The first layer is what I like to call “cabinet economics,” where decisions are made not based on economic laws and rules, but on the balance of power in political offices. From this perspective, it was clear that Nabiullina would cut the rate, since Putin had promised the head of Yakutia 10 days earlier that the rate would be lowered.

If the Chairperson of the Bank of Russia had not done this, she would have come into conflict with Putin.

The bet is don’t believe your eyes.

But the rate was reduced by a minimal amount. This is a purely symbolic adjustment, while the documents the Central Bank simultaneously published—  the press release ,  the forecast —and all the comments the Central Bank’s management made, rather suggested that the rate needed to be raised, that things would get worse.

They raised their inflation forecast, they worsened their economic growth forecast, and they gave a completely dire forecast for the budget deficit by the end of the year—if you add up all the figures from their reports, it’s about 8 trillion rubles. And that, mind you, is just the federal budget.

And there are also regional budgets, where the deficit will also be large, apparently no less than 1.5-2 trillion rubles.

There’s also the deficit in the Social Fund, which pays pensions. Last year, it was 1.23 trillion rubles. This means the government as a whole will have a deficit of over 10 trillion rubles in 2026 (compared to the consolidated budget revenues of the Russian Federation for 2025, that’s a 13% gap).

The numbers are huge, and it’s unclear how to plug such holes—revenue sources are drying up. The  Wildberries stories , the oil industry stories—they’re also about the budget. In Russia, everything is tied to the budget—either through its revenues or its expenditures.

What’s happening isn’t hard to explain. On the one hand, gasoline production and sales are declining, leading to a drop in excise taxes, VAT, and income tax.

On the other hand, the first Indian gasoline is coming, and its price will include, in addition to the purchase price, the cost of delivery from India to Russian ports and regions. Incidentally, the Russian Federal Antimonopoly Service has already approved the price of an imported alternative to AI-92 at 112,600 rubles per ton. This is approximately 1.5 times higher than the domestic price.

To protect the domestic market from such expensive fuel, the budget will pay oil companies a certain amount to prevent them from raising prices on imported gasoline (the decision to include it in the damper scheme for Russian-produced fuel has already been made). The compensation for gasoline importers is estimated at more than  50,000 rubles per ton—approximately 3.6 times higher than the damper on the domestic market.

In other words, the state receives money from the oil industry and then immediately gives it back to the oil industry to keep gasoline and diesel prices from rising too much. The balance of this cash flow will worsen.

Next, problems are starting to arise with retail: warehouses are burning down and small retailers are going bankrupt. This means there will be problems with VAT, with the profit tax for all these small retail players, and for Wildberries itself . Don’t forget that Wildberries  accounts for approximately 10% of all Russian retail. There will also be a decline.

This will also impact banks, which previously earned healthy profits from retail lending, and paid hefty taxes to the budget. They are seeing worsening loan repayments from both  Wildberries and its clients—the retailers. Dmitry Peskov stated that there is a debate underway: should the affected retailers be helped? I don’t think anyone will give the retailers anything, and if they aren’t helped, a lot of people will go bankrupt. Everything they owe the banks won’t be repaid. And many of these people took out loans not only for their businesses but also for their personal needs—consumer loans, mortgages. They thought they were doing well; they were good at making money in Russia. And the war doesn’t affect them. Now everything is up in the air. What should the banks do? Evict these people from their mortgaged apartments? A politically sensitive topic…

Problems are mounting, problems that are simultaneously economic, financial, social, and political. None of them is powerful enough to collapse the Russian economy. But taken together, they will steadily corrode both the budget system and socio-political stability in Russia as the economy weakens.

When we talk about the economy as a whole, we understand that it has a growing military sector and a declining civilian sector. Overall economic growth with this structure is declining: according to  the Ministry of Economic Development, growth in the first half of 2026 will be 0.3%. Compared to the same period last year (1.2%), growth has slowed fourfold, and compared to the second half of last year (0.9%), it has slowed threefold . The Bank of Russia’s latest economic forecast predicts GDP growth of 0% to 1% in 2026. Within the limits of accuracy, of course.

Where are we currently witnessing a terrible situation with diesel fuel? In the mining industry. All the equipment there runs on diesel fuel—excavators, bulldozers, dump trucks, diesel locomotives. Without diesel fuel, the mining industry grinds to a halt, meaning no revenue for the budget. We’re discussing the money lost from the sale of gasoline and other fuels, but the trouble continues. Problems are emerging in the mining industry, logistics are starting to crumble. Russian Railways is already in trouble. The fuel crisis will have a very painful impact on various areas, and therefore, the economy will likely decline rather than grow.

And the Central Bank carefully hinted at this with its forecast. Zero is stagnation.

Elvira Nabiullina’s Funeral Agency

Nabiullina likes to repeat the phrase that the Russian economy has two channels of income: credit and budget. The Central Bank has been relatively successful in regulating the credit channel to keep inflation down. But it has always struggled with the budget channel.

And now, nothing can be done about the budget channel. While Nabiullina was on sick leave, Russian budget legislation changed.

Now, firstly, the Ministry of Finance can spend more money than is written into the budget.

Secondly, the Ministry of Finance can borrow not just the amount stipulated in the budget, but as much as it wants. The only limitation is that it cannot borrow more than the balance in treasury accounts. But here, too, something has recently changed. Previously, data on the amount of money in treasury accounts was published. Now the Ministry of Finance has withheld this information. Whether there is money there or not—no one but the Ministry of Finance knows anymore. There are no longer any real limits on public debt—Siluanov can’t be caught red-handed. What does this mean? Budget expenditures have become completely unpredictable. Including for the Bank of Russia.

Russian economic governance used to follow a specific pattern. The Ministry of Economy would prepare an economic forecast for the coming year. Based on this forecast, the Ministry of Finance would calculate potential budget revenues and expenditures. Finally, based on the Ministry of Finance’s intended receipts and expenditures, the Central Bank would formulate monetary policy for the coming year.

Now the situation is different: no one knows how much the Ministry of Finance will spend, so the Central Bank’s planned regulation of the money supply has become pointless. No matter what they do, excess money will flow from the budget again, and everything will be destroyed.

The economic structure has fundamentally changed following the changes to budget legislation. We are witnessing the end of the market era of Russian economic development that began in 1992–1993. For several years, I referred to this as “the end of NEP 2.0,” and it appears I was right. The Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has long argued that regulating the Russian economy through the key rate is pointless. And, in fact, today, the center’s experts have proven themselves right.

Why?

The key rate is a powerful tool for regulating the economy. But in a market economy with a dominant share of private property, the price of money influences the profitability of business—this tool can be used to control the behavior of private owners. But private owners are becoming fewer in Russia, while state managers and state-owned businesses are becoming more prevalent. It’s no surprise that the key rate has ceased to regulate the state of the economy and even, surprisingly, the price of money within it.

Even banks have stopped paying attention to it. Banks have two tools: the deposit rate and the loan rate. Previously, they were always tied to the key rate. If the Central Bank rate falls, both deposit yields and loan costs fall. If the Central Bank rate rises, everything rises. That’s how it should be. And what now? At its meeting on July 24, the Bank of Russia’s board of directors cut the key rate by 25 basis points to 14% per annum. And on July 31, Russian banks raised deposit rates for the third time in a row .

In other words, the key rate is falling, while banks are raising deposit rates. Why? Because other factors are at play that the Central Bank of Russia cannot control. Because of these factors, the population is withdrawing money from banks. In the early years of the war, people rushed to banks and deposited money at high interest rates. Now, people are rushing to banks to withdraw cash. The outflow of cash from banks has reached almost  2 trillion rubles since the beginning of the year and has caused a liquidity shortage in the banking system. In the last month alone, more than 600 billion rubles in cash were withdrawn. The outflow of funds into cash in Russia for the year could reach approximately 3.8 trillion rubles. Banks are losing money and, to win back depositors, are raising deposit rates – despite the reduction in the key rate.

Moreover, there is the concept of a “floating rate.” A bank can provide a loan at a fixed rate for the entire loan term, or it can adjust the rate based on inflation—this is a floating rate. In Russia, many companies take out loans at a floating rate. This can be determined in two ways. The first is the Central Bank’s key rate plus a bank commission of 2-4%.

The second is RUONIA plus the bank’s commission. RUONIA  is the weighted average cost of unsecured loans in the Russian economy, that is, the real market value of money. Until recently, the RUONIA rate was closely aligned with the key rate. But now they have diverged. The Central Bank rate is falling, and RUONIA is rising.

The key rate is losing all meaning in the Russian economy. It’s a ritualistic indicator that, for Nabiullina, signifies that Russia’s economy is still a market economy, and she, as a market banker, regulates market processes using market instruments. But now all this is no longer true; the logic has been broken, and maintaining a high key rate only harms the economy. 

Down with inflation!

But then the question arises. If we admit that we can’t control inflation with the key rate, what should we do to prevent hyperinflation? The answer: regulate prices.

Lord Keynes proposed this during wartime, and it’s already beginning to happen. Legislative amendments have just been introduced introducing state price controls. Moreover, the legislative foundations for state price management have been laid.

So, essentially, they’re creating a state price inspectorate, like the one in the USSR, and the next step, apparently, will be for the FAS to be empowered to set prices. How they’ll manage this, I don’t know; they don’t have the people, the knowledge, or anything like that. But both manufacturers and retailers will be paying bribes to the officials there for “coordinating price levels”…

It’s increasingly likely that inflation will be combated by price fixing. This will lead to the destruction of the market economy as such, creating shortages and distribution based on other principles. When prices are fixed, set by government officials based on the cost method, they cease to function as a tool for distributing products or choosing what to produce. Market prices are, first and foremost, an indicator of what can be purchased, what cannot, what is worth producing, and what is not.

State pricing as an economic management tool doesn’t work. What’s needed is state regulation, a state plan, a State Committee on Prices, a State Supply Committee, a State Committee on Labor, distribution standards, and so on: forward to the Soviet Union! In the worst version of the insane communist ideology—the Marxist-Leninist political economy of socialism.

All these hopes for digital data and online monitoring of the situation are pointless for one simple reason. Do you have information on all the agents in the Russian economy? On all the participants? The answer is no.

Rosstat, the main source of economic information, knows average salaries, profits, losses, and so on. But it only calculates these figures for large enterprises, which are required to submit reports to Rosstat. Rosstat doesn’t even touch small and medium-sized businesses; the data is calculated using some coefficients. Yes, it’s possible to eliminate small and medium-sized businesses, leaving only large, state-owned enterprises that are controlled and whose information is collected. What are the risks of this? Consider the history of the Soviet Union.

Information from receipts? People are switching to cash right now. According to the latest available data from Sberbank (it was also shut down), the share of cash payments has already increased from  21% to 25% . You won’t be able to track anything that’s done in cash using receipts. That’s always the case. Therefore, of course, the shadow trade in goods and money is growing, and the black market is also reviving due to shortages (much has been written about the gasoline trade in Crimea).

In such an economy, even the concept of “inflation” can be abolished, and such attempts are being made. Rosstat now reports “prices decreased” when prices fall. And when prices rise, it reports “prices changed.” So instead of inflation, it will be “price change.” There was a brilliant term in the Soviet economy; I’ll never forget it when I die. We economists didn’t use the term “inflation” in the Soviet Union—it was strictly forbidden. Inflation was impossible in the Soviet economy by definition. The phrase used was “an increase in average prices due to an improvement in the quality and expansion of the range of goods and services produced.” So that’s exactly what will happen now. We’re waiting. 

Investment cycle named after citizen Koreiko

Another blow to private property is Putin’s announcement of a new investment cycle. Putin will collect proposals on how to launch it in August, but it’s already clear that this is a rip-off of Russian billionaires.

This isn’t the first time Putin has approached this; he’s already tried to force billionaires to chip in for the war. The idea that people need to chip in to invest is actually quite old. It’s Andrei Belousov’s idea. In 2018, when he was still Putin’s economic adviser, he began arguing that metallurgists and chemical companies, taking advantage of a favorable market situation, had inflated prices, “swindled the state” out of a large sum of money, and should therefore now hand it over to the state! There followed a long struggle, with him attempting to take this money away from businesses, assemble an investment pool from it, and use the state to inject it into the economy (in the end, the companies allocated funds for projects outlined in the president’s “May decrees”).

What will they try to do now? They’ll simply force every major company to submit an investment plan, which they will finance with their own funds. But companies have little of their own funds—profits are falling. Look, in December 2021, Russian corporate profits were 29.6 trillion rubles. By December 2025, they were already 27 trillion rubles , and inflation in 2022–2025 exceeded 36%. But since investments can’t be financed from corporate profits, owners will be forced to contribute their own money to their companies’ investment programs. Putin will force them to withdraw money from offshore accounts and personal (family) funds and invest it in Russian enterprises. And those who don’t will be dealt with separately.

In recent months, we’ve seen wealthy individuals frantically transferring money from Russia abroad. Cryptocurrency is being used, and there’s a frantic buying-up of real estate in neighboring countries (for example, Armenia). It’s not new immigrants buying apartments; it’s investors from Russia. They’re trying to get their money out somewhere, to invest in something. Russian money isn’t allowed everywhere, but for now, there’s still a chance to penetrate some countries. That’s where the money is being pumped in, buying real estate there so that after Russia’s collapse, there’ll be at least some asset to manage. Capital is being withdrawn, and all the wealthy in Russia understand that what’s next will be outright robbery and economic collapse.

And those who can’t leave Russia with the money will be forced to invest their personal funds in their companies. There’s plenty of that money, because, after all, the Forbes 2026 list of Russia’s billionaires includes 155, and their combined wealth has grown to a record $696.5 billion during the war. A little help from each person will add up to a sizable sum. The only question is, what to do with it? Investments aren’t just about money.

For there to be investment, something else is needed.

First, we need something to spend the money on. We need to be able to buy machine tools, equipment, and so on. Russia is in dire straits in this regard. Apparently, we’ll have to import them from China in huge quantities. And no one can say how much this will cost, or how much of a premium China will charge for such a massive purchase under sanctions. But it’s clear that the Chinese won’t give it away cheaply; on the contrary, they’ll jack up the price and strip Russia bare without a trace.

Second, to create a business using this equipment, skilled labor is needed. This situation is a complete disaster in Russia. Skilled labor is becoming increasingly scarce. A study by the Institute of Industrial Policy and Management (IRPE) showed that over 90% of companies are already experiencing a labor shortage. Svetlana Chupsheva, General Director of the Agency for Strategic Initiatives, reported that by the end of 2024, Russia was short of approximately 1.5 million skilled specialists. And according to Minister of Labor and Social Protection Anton Kotyakov, Russia’s unmet need for such personnel will be at least 2.4 million people by 2030 .

Third. Let’s say the money has been invested, the plant has been built, and now the output needs to be sold. The key question for any investment project is: is there demand for the increased capacity? This is a complete disaster; there’s no unmet demand in Russia, because the population is getting poorer and will get poorer even faster.

Fourth and finally, the investment process requires predictability and a payback period. If I invest money, I expect it to generate a net income over a certain period of time that will recoup the investment. This requires some economic predictability, which Russia lacks. And absolutely everyone, including the leadership of the Russian Union of Industrialists and Entrepreneurs (RSPP), is talking about this: “The main challenge for the Russian economy in 2026 is uncertainty, which is largely due to external factors. This was stated by Alexander Shokhin , President of the Russian Union of Industrialists and Entrepreneurs (RSPP), in a conversation with a URA.RU correspondent .”

It’s possible to raise money (even millionaire Koreiko handed it over under duress), and it’s possible to force owners to present investment programs, but it’s unlikely to translate into economic growth. Russians will face, at best, a stagnant economy, and most likely, a declining one…

https://ru.themoscowtimes.com/2026/08/08/ekonomika-dolzhna-bit-ekonomnoivmesto-rinochnoi-tseni-budut-sovetskie-lozungi-i-novie-vozmozhnosti-dlya-korruptsii-a202986