INFLATION TARGETING UNDER FISCAL DOMINANCE: CHALLENGES AND DESIGIONS

The article examines the challenges facing the inflation targeting regime in the Russian Federation under conditions of fiscal dominance that emerged between 2022 and 2025. The authors demonstrate that sustained expansion of government expenditures, rising budget deficits, and increasing public debt have become key pro-inflationary factors, significantly constraining the effectiveness of conventional monetary instruments. Despite repeated hikes in the key interest rate, inflation remains persistently above the 4% target, indicating weak price responsiveness to monetary policy amid dominant fiscal and other non-monetary shocks. The study critically re-evaluates the theoretical foundations of classical inflation targeting, which rely on monetary dominance, and argues for the necessity of adapting the regime to new macroeconomic realities. The authors propose concrete measures to modernize monetary strategy, including: integrating fiscal indicators into the Bank of Russia’s macroeconomic forecast, institutionalizing structured fiscal-monetary dialogue, transitioning to flexible inflation targeting with a tolerance band, enhancing communication policy, and deploying macroprudential instruments.