Reducing baseline oil price in fiscal rule without adjusting expenditures would require slower rate cut - Central Bank of Russia
MOSCOW. March 4 (Interfax) - Reducing the oil cutoff price in the fiscal rule without adjusting spending would lead to increased government borrowing, which would require a slower reduction in the key rate, and monetary policy response would not be necessary if spending is reduced, the Central Bank of Russia said.
"If a change in the parameters of the fiscal rule, in particular a reduction in the baseline price, is not accompanied by an adjustment in spending, leading only to increased borrowing, then, all other things being equal, this would require more restrained growth in credit to the economy, namely a slower reduction in the key rate and tighter monetary policy," the Central Bank's press service told reporters.
Spending cuts accompanying a lower baseline price increase the long-term sustainability of public finances, "which, all other things being equal, contributes to a reduction in the risk premium and does not require a monetary policy response," the regulator said.
The Central Bank will review the changes to the fiscal rule parameters in detail at the meeting of the regulator's board of directors on the key rate on March 20.
"Decisions on the key rate will be determined by the need to ensure a slowdown in current price growth to 4% year-on-year in the second half of 2026 and to maintain it at this level thereafter, as based on a combination of factors and incoming data. It is inappropriate to base decisions solely on the fiscal rule parameters. However, this is an important component of the prerequisites, which will be reviewed in detail by the board of directors at the next meeting on the key rate," the Central Bank said.
The regulator said that the full effect of the changes to the fiscal rule parameters on monetary policy could only be assessed after the announcement and final approval.
Russia's Finance Ministry has decided not to conduct fiscal rule-based foreign currency and gold sales and purchases on the currency market in March 2026 due to the planned adjustments.
The government decided last year to gradually reduce the cut-off price for oil in the fiscal rule by $1 per year, from $60 per barrel to $55 by 2030.
Russia introduced a new fiscal rule in 2018 that called for merging the Reserve Fund and National Wealth Fund (NWF) into one fund and setting a base oil price of $40 per barrel with annual indexation by 2%. In 2023, after the suspension of the fiscal rule in 2022 due to sanctions, the government replaced the cut-off price with a fixed amount of base oil and gas revenues, at 8 trillion rubles with indexation by 2% starting in 2025. A year later, the ministry proposed to return to a base oil price. The current configuration of the fiscal rule, introduced in 2024, set a base oil price of $60 that was supposed to be indexed by 2% starting in 2027.
