Fiscal and monetary policy interaction in Russia, 2000–2025

This article examines the interaction between monetary and fiscal policy in Russia, with particular attention to the fiscal and monetary sources of changes in high-powered money (the monetary base). The decomposition of changes in the monetary base allows us to split the 2000–2025 period into subperiods according to macroeconomic conditions and the policy objectives of the monetary and fiscal authorities. The recent period of 2022–2025 is studied in more detail, since the Russian economy was subject to substantial inflationary shocks, fiscal expansion being one of them. We discuss the effectiveness of monetary policy in that period and the role of fiscal policy in narrowing the room for disinflation. The analysis shows that the Bank of Russia retains the ability to control the money supply despite the easing of fiscal policy. The Bank of Russia had the instruments to reduce inflation, and the persistence of elevated inflation in 2023–2025 can be viewed as the result of a policy stance that was not sufficiently tight; a tighter stance, however, would have exposed the financial and real sectors to the risk of destabilization.