Elvira Nabiullina, chair of the Bank of Russia, has set the Moscow rumor mill in motion with her extended absence from public events on sick leave. Her failure to attend the St. Petersburg Economic Forum was particularly notable, as was her absence from a briefing with Putin this Wednesday. She also skipped the funeral of her colleague Aleksei Mozhin and another economic conference. Observers are naturally trying to read the tea leaves. Her term expires next June, and for better or worse, she remains the figure markets trust most as an independent voice—though that independence is often exaggerated for political effect. Speculating about potential replacements is worthwhile, but it requires caution and context given the precarious state of the Russian economy.
The Bank of Russia remains the most powerful institution of macroeconomic governance because of its core functions. It sets the cost of capital and holds wide regulatory powers over the banking sector. In practice, however, these functions have not been independent under wartime conditions. They are subordinated to decisions made by the Ministry of Finance and the rest of the regime. In effect, Nabiullina has applied the brakes in response to Anton Siluanov and the budget officials stepping on the gas, as nominal money circulating through the economy has surged. High wartime spending and sanctions have triggered the Bank’s orthodox response. There is little doubt that a sharp cut in interest rates would be inflationary, given the economy’s supply constraints—especially in labor. Yet orthodox economists, with their near-religious preference for high interest rates and budget surpluses as stabilizing tools, are poorly positioned to address the structural drivers of inflation in wartime. Nabiullina’s own record offers a useful illustration.
Before her appointment to the Bank of Russia in 2013, Nabiullina clashed with Igor Shuvalov and others over the regulation of natural monopolies. As Russia’s economy slowed, roughly half of inflation at the time was driven by rising utilities and railway tariffs. Then an adviser on Putin’s personal staff, Nabiullina wanted to deregulate these monopolies so that private firms could compete more effectively, set their own prices, and invest in capacity. Although her proposals were always politically constrained, she genuinely believed that greater competition could bring prices down.
Her underlying thesis was straightforward: centralizing control over procurement contracts, concessions, and price-setting turned the government into a major source of inflation. Policy inevitably tilted populist, allowing the regime to influence prices and outcomes while delivering inadequate investment in services. Before the full-scale invasion, prices were routinely capped using formulas such as “inflation plus 1 percent” to limit the burden on households and businesses.
Officials may believe they can keep inflation in the 5−6 percent range this year, but high interest rates have created a new cyclical problem. Natural monopolies cannot borrow for capital investment at current rates without imposing large price increases, and the Ministry of Finance is unwilling to spend scarce resources on broad subsidies. The result has been sharp rises in utility costs since 2022. Another 15 percent increase in communal utility tariffs is scheduled for October 1, adding fresh inflationary pressure that complicates deeper rate cuts.
In wartime, the state effectively sets prices for labor, electricity, fuel, rail transport, water, natural gas, imports subject to tariffs or recycling fees, many pharmaceuticals, and—less directly—staple foods. High interest rates ultimately fuel inflation because the federal budget, which prioritizes the war, passes costs onward. A similar self-reinforcing pattern exists in parts of the private sector where competition is weak. In 2025, nearly 60 percent of business fixed-asset investment was self-funded. The longer rates stay high, the more companies cut investment where they can and use whatever pricing power they have to cover their needs. When that pricing power fades, lower interest rates provide only limited relief. They may avert a deeper recession, but an economy stuck in the 5−6 percent inflation range while contracting is likely to see even higher inflation once growth returns.
At the June 10 briefing Nabiullina skipped, Putin claimed that anti-inflation efforts were working and that rate cuts were coming. Whether this holds as oil markets approach the edge of viable inventories this summer is uncertain—quite apart from the expected burst of inflation in the fall. Even if oil prices remain stable through the summer, the impact on fertilizer markets will feed into food supply chains later this year and likely trigger further price increases. The growing uncertainty around Nabiullina, however, shows that economic orthodoxy is finally buckling under the weight of its contradictions and its inability to tackle the real sources of imbalance and inflation.
Rather than speculate about a successor, observers would do better to ask what would actually be required to lower interest rates within the current fragile balance of fiscal, monetary, and political forces. Peace is not an option, at least not yet. Any solution would therefore demand administrative measures and unconventional thinking from a technocratic elite long accustomed to staying within orthodox boundaries. It is becoming harder to see how the existing dysfunction between fiscal, monetary, military, and growth policies can continue without a more administrative approach to economic management. While it is still too early to say, the drama surrounding Nabiullina and the Bank of Russia suggests that old taboos may be weakening. In an environment where high interest rates can themselves push up inflation in key sectors, there is less room for orthodoxy. Even technocrats eventually have to learn new tricks.
