An overview of the effects of monetary policy in Russia on GDP and inflation, from 1996 to the present day.

% annual growth rate:

  M3 Nominal GDP
1996-2022 24.55% 19.71%
1996-2000 37.33% 40.87%
2001-2010 32.81% 20.69%
2011-2020 13.08% 8.17%

Sources: M3 from OECD database and nominal GDP from IMF database, as at August 2023.

The medium-term relationship between money and nominal GDP growth in Russia, 1996-2022

Five-year moving averages of annual % changes, with 1998 being the start of the first five-year period

Comment on monetary trends in Russia

The 1990s saw the collapse of the Soviet Union and the political and economic transformation of the Russian Federation. The lifting of price controls in the early 1990s, together with the lack of stable market institutions and quite rapid and sustained monetary growth resulted in escalating inflation and eventually hyperinflation in 1992 (with an annual rate of inflation higher than 2,500%). Since the mid 1990s a more sustainable fiscal policy and tighter monetary policy has helped to cut down the rate of money growth (31.51% on average, see table above) and thus inflation (20.69% on average). The central bank has contributed to the stabilisation of the purchasing power of the ruble by gradually moving from a managed floating exchange rate to a freely floating currency in 2014 and an inflation targeting monetary policy; by which the central bank commits to achieving a 4% annual rate of inflation by 2017. Monetary policy has become more compatible with lower inflation since 2011 and inflation has returned to more moderate figures. However, the effects of lower oil prices and political tensions with the international community led to the imposition of economic sanctions to Russia in 2014 and triggered fears over the stability of the economy and the financial system. As a result the ruble depreciated quite significantly in 2014 and 2015, which had a major impact on domestic prices (with inflation spiking again to double-digit figures in 2015). Until  2021, the central bank managed to keep money growth in check and bring inflation down to its 4% inflation target.

Both broad money growth and inflation started to rise at the end of 2021. The effect of sanctions imposed on the country as a result of its invasion of Ukraine in 2022 exacerbated the problem due to the resultant decline of the ruble against the dollar.  Interest rates were raised to almost 20% in an attempt to bring inflation, which rose to over 16% in the year to March 2022, under control. Although inflation declined towards the end of 2022 and interest rates were reduced accordingly, it began to climb again in the second half of 2023, which resulted in a sharp tightening of monetary policy.