Since the start of the full-scale war, the Central Bank’s monetary-policy swings have gone through four stages.

Fear of inflation

In February 2022, at an emergency meeting held overnight on a Sunday, the Central Bank sharply raised the key rate from 9.5% to 20%, fearing rising prices. That fear was entirely justified. Year-on-year inflation subsequently jumped to 17–18%, according to official figures, and without the rate hike, things would have been even worse.

However, this stage did not last long. After all, in addition to inflation, the Russian economy was hit by the inevitable decline in production (and of business activity in general). In particular, foreign investors left the country en masse, while some found their funds frozen. 

The stock market plunged sharply. Between February 25 and March 24,  2022, stock trading on the Moscow Exchange was suspended altogether. Once operations resumed, it became clear that a return to prewar stock prices and trading volumes was out of the question. At the end of April, the Moscow Exchange Index was 20% below its level on the eve of February 24. Under these circumstances, the Central Bank began to regard a depressed economic trajectory as the main danger.

Fear of recession

The second stage lasted from May 2022 to August 2023. During this period, the key rate was rapidly cut, holding at 7.5% for most of the period. The money supply grew from 68 trillion rubles to 90 trillion as the crisis was flooded with money.

The short-term consequences for the economy were exactly what had been hoped for: optimism took hold in a country at war. In April 2023, the Moscow Exchange Index returned to 2,500 points, reaching 3,000 in July. By the end of August, it was already at 3,200 – higher than on the eve of February 24, 2022!

Starting in the second quarter of 2023, Rosstat reported a return to GDP growth – at impressive rates of 4–5% year-on-year. Official inflation, responding with a lag to the anti-crisis measures, continued to decline through April 2023. Moreover, from March to June, it remained below the 4% target. However, it reached 4.3% in July and 5.1% in August. The attempt to bring it back to moderate levels failed.

Renewed fear of inflation

From July 2023 to October 2024, the Bank of Russia raised the key rate eight times, taking it to a record 21%, and then kept it at that level for nine months. At first, this did not help – the accumulated effects of the previous period of cheap money were too strong. And the expansion of the money supply did not stop, growing from 90 trillion to 119 trillion rubles.

Until July-August 2024, price growth continued to accelerate, reaching 9%, according to official figures. The stock market also did not perceive this policy as particularly tight, and through May-June 2024, the Moscow Exchange Index was broadly flat.

In the second half of 2024, monetary policy reached its maximum level of tightness: stocks plunged, while the number of bankruptcies reached a record high. The stock market suffered another major decline, partly as a result of sanctions against the Moscow Exchange.

However, rather than falling, inflation remained steady at around 9% a year until the very end of this stage. Under these circumstances, the Bank of Russia changed its priorities again without waiting for a clear and visible victory over inflation. In 2025, the decline in stock prices was accompanied by a sharp slowdown in GDP growth, to 1–1.3% a year. Once again, fears of an economic downturn came to the fore.

Renewed fear of recession

The Central Bank continues to say that “pro-inflationary risks outweigh disinflationary risks,” while systematically cutting the key rate. As always, the effects are not immediate.

Inflation through the end of 2025 was determined by the conditions of the preceding period of tight monetary policy, with price growth slowing to 6% year-on-year. In 2026, however, there has been no further slowdown: inflation has remained at around 6%. Moreover, the outlook is unfavorable. As recently as June, the Bank of Russia forecast that “annual inflation will decline to 4.5-5.5% in 2026.” By July 24, however, it had given a different forecast: “According to the Bank of Russia’s forecast, annual inflation will be 6–7% in 2026 due to the significant increase in fuel prices.” 

Whether fuel is to blame or not, the Russian economy’s situation is now critical both in terms of inflation and of real output. Inflation rose in response to the easing of monetary policy, and when that policy was then eased a little further, the inflation forecast was raised accordingly. Meanwhile, real GDP had already contracted in January and February, even according to Rosstat figures. Russian companies’ shares have been falling for the third year in a row, with the annual return  negative in 2024, 2025, and in the part of 2026 that has elapsed so far.

The negative trend is being exacerbated by the growing erosion of property rights, as controlling stakes in various companies are increasingly being transferred from private owners to the state through legal actions that are becoming less and less transparent. A precedent was set by the nationalization of a controlling stake in the gold-mining company UGC, a process that harmed not only the majority shareholder accused of legal violations, but also minority shareholders, who did not receive the buyout offer required by law.

While the Central Bank can fully control inflation, it can influence the level of business activity only in the short term. Once the fundamental conditions for an economic downturn have taken hold in a country, no monetary policy can reverse them.

It should not be forgotten that war means diverting labor and capital away from productive activity and into destructive activity. It means death and injury for some people, emigration for others, and burnout and exhaustion for almost everyone. It means consuming accumulated reserves. It means replacing familiar and predictable rules with chaotic emergency measures – including nationalizations, price manipulation, and unpredictable seizures and giveaways worth trillions of rubles. It means isolation from the rest of the world, higher unit costs, direct physical destruction, and accelerated deterioration of infrastructure. It means environmental and social disasters from pollution to rising crime. Monetary “stimulus” is powerless in the face of such a calamity, and many economists believe that it is powerless even against regular cyclical crises.