Minus to plus: the Central Bank regards the draft budget as disinflationary

The Central Bank sees a positive in the budget changes and assesses them as disinflationary — according to the regulator, tax changes will not become a source of sustained inflationary pressure. This was stated by the head of the Bank of Russia, Elvira Nabiullina, during the plenary session of the XXII International Banking Forum. According to her, an increase in the budget deficit would be detrimental to the monetary sphere, as this would stimulate demand and cause prices to rise. Also during the session, the authorities discussed ways to support the financial system and double the capitalization of the stock market by 2030. How the decisions of the authorities will affect the economy is in the Izvestia article.

How will the tax changes affect the key rate

Changes in tax and budget policy form a positive background for further decisions of the Central Bank on the key rate, said the head of the Bank of Russia Elvira Nabiullina during her speech at the XXII International Banking Forum. According to her, the regulator evaluates the draft budget as disinflationary and sees important predictability in its parameters.

— If the government had increased the budget deficit to finance the necessary expenditures, we would have had to significantly raise the rate forecast for 2026. Now, let me remind you, it is 12-13%. The government's decision removes these concerns," said Elvira Nabiullina.

An increase in government debt would have brought a lot of extra money into the economy — with the same volume of goods and services, this would have accelerated inflation, said Igor Rastorguev, a leading analyst at AMarkets. OFZs of the Ministry of Finance would partially displace businesses from the bond market, raise loan rates and slow down investments. As a result, the macroeconomics would deteriorate, and the Central Bank would have to tighten policy.

Nabiullina clarified that the VAT change would not have as significant an impact on the key rate as it could have if the budget deficit had increased. The experience of the previous tax increase in 2019 by 2 percentage points showed that the inflationary effect of such a decision is moderate and may be limited to a one-time price increase of about 0.7 percentage points, she said.

According to her, there will be a short-term impact on price dynamics, but it cannot become a source of sustained inflationary pressure. The impact may manifest itself only in slowing the decline in inflation expectations, but not in forming a long-term trend towards price acceleration.

The Bank of Russia believes that changing the tax reduces demand in the economy, but an increase in the deficit and government debt, on the contrary, adds more money to the system and accelerates domestic demand, which increases inflation, said Olga Belenkaya, head of the Macroeconomic analysis department at Finam.

According to the head of the Central Bank, if the government had chosen the path of increasing the budget deficit to finance expenses, the regulator would have had to significantly raise the forecast for the key interest rate for 2026. However, the decision on tax changes removes this concern.

In any case, there is a risk that by the end of the year the key rate will remain at a high level of 15-16%, said Boris Kopeikin, chief economist at the Stolypin Institute for Growth Economics.

Elvira Nabiullina's statement is positive for the market — it will dispel fears that the VAT change will slow down policy easing and force the Central Bank to raise the key rate forecast for next year, Olga Belenkaya noted. She believes that the regulator will carefully reduce the key rate, and the probability of movement to the lower limit of the baseline forecast has decreased due to high inflation expectations. At the same time, budget changes will not lead to a fundamental change in the course of monetary policy.

How are the authorities going to support the financial market

Deputy Finance Minister Ivan Chebeskov recalled the goal set by President Vladimir Putin: to bring the capitalization of the stock market to 66% of GDP by 2030. According to him, the government, together with the Bank of Russia, is developing incentives for the development of the financial market, including subsidizing listing costs for small technology companies.

Elvira Nabiullina announced the launch of a cost compensation mechanism for SMEs when going public. According to her, this is a particularly timely measure, since small companies are extremely sensitive to high loan rates, and for them the opportunity to attract capital through the market is more easily plays a key role.

For small and medium-sized businesses, entering the stock exchange is primarily important not to raise money cheaper, but to become more visible to investors, improve company management and increase trust in it, said Dmitry Tselishchev, Managing director of the investment company Rikom-Trust. Loans are expensive now, and it's not profitable to just borrow money. Publicity provides strategic advantages: the company becomes more transparent, easier to evaluate and invest in.

Therefore, the best way to support SMEs is to create a simplified and government—supported way to enter the market: with lenient requirements, tax benefits and other assistance during the placement of shares, the expert believes.

—The entry of SMEs into the stock exchange at high rates is a step towards increasing trust, improving corporate governance and access to cheaper financial instruments in the future," said Igor Rastorguev from AMarkets.

During the discussion at the forum, Deputy Chairman of the Federation Council Nikolay Zhuravlev suggested considering the possibility of taxing non-public companies if the government doubts the expediency of tax incentives for public issuers.

This approach may push some businesses to enter the stock exchange, but it is more likely to lead to a retreat into the shadows and lower investments in individual companies and entire sectors, Dmitry Tselishchev explained. Positive incentives work much more effectively: tax incentives for public organizations, subsidies for share placement costs, and the inclusion of companies in the portfolios of institutional investors. Such measures create healthy motivation for managers and owners.

Deputy Finance Minister Ivan Chebeskov stressed that if there is a shortage of capital, companies should enter the market and raise funds through the issue of shares, citing the successful VTB SPO as an example. He also noted that he expects an active IPO of state-owned companies and reported on the work on a system of incentives for their management.

For such organizations, it is not the fact of going public that is important, but a set of measures: motivation of management through an increase in the value of shares, steady demand from investors, Dmitry Tselishchev believes. Additional tax or administrative benefits at the initial stage are also important.

Incentives for IPOs of state-owned companies, such as temporary tax breaks or partial exemption from dividends, can work well, Igor Rastorguev believes. This will help them attract private money and make such companies more transparent and manageable. This means more investments, a more active and deep stock market, an honest assessment of companies and the development of long-term investments, which will eventually support economic growth.