In early 2026, economic activity slowed down, returning to a balanced growth path. Time is needed for households and businesses to finish adapting to the changes in taxes and regulation. Following this, economic activity is expected to rebound.

The January surge in inflation caused by the increase in VAT and other taxes and duties was transitory. In February, growth of consumer prices decelerated. To ensure a sustained return of inflation to the target of close to 4%, the Bank of Russia should maintain tight monetary policy for an extended period.

More details are presented in Talking Trends, a Bank of Russia bulletin.

The 2025 Surprise: Growth Coexists with Tight Policy
The bulletin opens with a significant revelation: GDP growth for 2025 landed at the upper end of the central bank's forecast. This challenges a common assumption, demonstrating that the prolonged period of tight monetary policy did not choke off economic expansion. The central bank’s argument is that this restrictive stance is a necessary phase to firmly guide inflation down to the 4% target. Only once price stability is secured can a shift to a neutral policy pave the way for even faster, sustainable growth.

Inflation: A Temporary Spike or a Resumed Trend?
For markets and consumers, inflation is the number-one concern. The report provides a cautiously optimistic, yet nuanced, update.

• The Good News: The sharp price increase seen in January 2026 was, as expected, transitory. By February, price growth had already slowed significantly, moving closer to a rate consistent with 4% inflation. This deceleration is attributed to cooling inflation expectations among households and businesses, alongside a temporary softening in demand as the economy adapts to recent tax changes.

• The Note of Caution: Despite the headline slowdown, the bulletin warns that underlying price pressures remain elevated. Even after accounting for the January VAT increase, core inflation components are still running high. The central bank stresses it must first confirm that the disinflationary trend has genuinely resumed and then work to cement it. This vigilance is especially critical given upcoming factors like the potential adjustment to the fiscal rule's base oil price and the scheduled indexation of utility tariffs later in the year.

Early 2026: Economy Takes a Breather, Labour Market Normalizes
Preliminary data for early 2026 shows a slight cooling in economic activity compared to the highs of late 2025. However, the report frames this as an expected seasonal pattern, similar to the start of the previous year. A more fundamental positive development is underway in the labour market: the gap between wage growth and labour productivity growth is steadily narrowing. This gradual normalization is a key foundation for future balanced growth, allowing for increased consumption without reigniting inflation.

Financial Markets: A Story of Diverging Forces
In February and early March, Russian financial markets reacted to a mix of domestic and international factors.

• Bond Market: Initially welcomed a key interest rate cut, but this optimism was tempered by rising expectations linked to an expanded government borrowing program.

• Currency & Commodity Markets: The ruble's exchange rate was caught between two forces: a pause in the Ministry of Finance's fiscal rule-based operations using National Wealth Fund resources, and rising prices for energy exports. Geopolitical developments also continued to influence the oil and gas sector.

Why This Bulletin Matters

This isn't just a collection of data points. It’s a window into the thinking of Russia's central bank, revealing how it interprets short-term fluctuations within a long-term strategy. For investors, analysts, and anyone tracking the Russian economy, this summary provides critical insights into:

• Policy Resolve: The central bank's commitment to its 4% inflation goal, even as growth surprises on the upside.

• Economic Resilience: The true sources and limits of Russia's growth under high interest rates.

• Future Risks: The upcoming factors—from utility hikes to fiscal rule changes—that could either help or hinder the disinflation process.

In essence, the March 2026 "Talking Trends" bulletin portrays an economy at a pivotal juncture: past growth has shown unexpected strength, inflation seems to be responding to policy, but significant internal and external challenges remain. The coming months will reveal whether this is the start of a stable new chapter or just a brief respite.