High Oil Prices Won’t Help russia

The bank of russia has published an updated macroeconomic forecast following its April meeting on the key policy rate. The document revises the February estimates, taking into consideration the escalation in the Middle East and rising oil prices, and paints a bleak picture.

The most notable change is a sharp revision of the oil price forecast. For 2026, the central bank raised its target from $45 to $65 per barrel, for 2027 – from $50 to $55. In other words, the external economic environment for russia has improved significantly. Meanwhile, forecasts for GDP and inflation remained unchanged.

But the most interesting part is the regulator’s reaction to this “improvement”. Instead of easing monetary policy, the central bank raised its projected average interest rate for 2026 by 1% – to 14.0–14.5%. The logic is simple and ruthless: additional petrodollars, through budget spending, fuel domestic demand, which in its turn fuels inflation. In other words, more oil means more money in the economy, and thus a longer period of expensive loans.

This is proof that the rf is structurally dependent on commodity market conditions and is unable to break out of this cycle even under favorable conditions.

Against the background of an economic slowdown and a 0.5% drop in GDP in the first quarter, the pro-kremlin “center for macroeconomic analysis and short-term forecasting” issued a memo calling for a revision of the central bank’s mandate: to obligate the regulator to focus not only on inflation but also on the state of the economy as a whole. They even propose partially limiting the independence of the bank of russia and making it coordinate decisions with the government.

The overall message of the updated forecast is that the moscow authorities do not expect a rapid normalization of relations with the West and do not plan to ease monetary pressure. On the contrary: the higher oil revenues, the greater the risk of inflationary overheating, and the less reason to lower the rates.