Russia's Putin rejects cautions about stagnating economy from top bankers

President Vladimir Putin has dismissed sentiments from Russia’s most prominent banker that the country’s economy is slipping into stagnation. He defended the central bank’s high interest rate policy, claiming it would control inflation amid rising costs.

Herman Gref, chief executive of state-owned Sberbank PJSC, warned on Thursday that Russia’s economy had entered a “technical recession” in the second quarter. He told the Eastern Economic Forum in Vladivostok that data from July and August showed “quite clear symptoms that we are approaching zero growth.”

When asked at the forum on Friday if he shared the banker’s assessment, Putin’s response was “No.” The Russian head of state admitted that some officials within the government raised similar points to Gref, but insisted that the central bank’s restrictive stance was necessary to avoid a surge in inflation. 

“We need to ensure a soft calm landing of the economy,” Putin told the local press earlier today.

Interest rates clock highs, but inflation is steady

Gref, who leads Russia’s largest lender, asked policymakers to slash borrowing costs, arguing that high interest rates were suffocating businesses and households. 

“Given the current level of inflation, recovery can only be expected when the rate is at 12% or lower,” he asserted. Sberbank’s internal forecasts predicted the benchmark rate would average around 14% by the end of the year, which, according to the banker, is still too high for businesses to grow.

Last September, the Russian central bank raised its key rate to 21%, the highest in two decades, as inflation accelerated on the back of war spending and supply shortages. Per Trading Economics data, Russia’s annual inflation eased to 8.8% from 9.4% in June, the lowest level since October 2024.

While policymakers have since reduced borrowing rates to 18%, they are more reluctant to make steeper cuts. Officials say military expenditures and state spending are threatening to bump inflation up.

Putin supports Bank of Russia decisions, but ministers are doubtful

Putin has stood behind Central Bank Governor Elvira Nabiullina despite the discontent of several industrialists and politicians. The Kremlin sees inflation as riskier than stagnation, with the president warning economists that unchecked price growth would harm ordinary Russians more severely than slower output.

“Some believe that hypothermia has already come, but lending has not stopped,” Putin said on Friday. “The pace has slowed down, I know, in some industries, the situation is not easy,” he added

Members of his cabinet, like Economic Development Minister Maxim Reshetnikov are saying the economy was “cooling down faster than expected,” which could mean revised forecasts would be submitted soon.

Finance Minister Anton Siluanov told Putin last week that next year’s growth projections had been cut to 1.5% from 2.5%, with some internal estimates closer to 1.2%. And according to independent analysts looking at the data, the Kremlin is running out of room to maneuver. 

Fighting for oil revenues inside the war

Politico reported this week that Ukrainian drone strikes have been targeting Russian oil storage and pumping facilities, causing domestic shortages and undermining output. The barrage of attacks has compounded the impact of falling global crude prices, leaving Moscow’s most important industry under siege.

“For the Kremlin, a brief period of low growth is tolerable, though combined with lower oil prices, it would reduce fiscal revenues,” Kolyandr continued, “On the other hand, if the government doesn’t reduce fiscal support, there’s a risk high inflation will return.”

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