ISW analysts in their report highlighted that the Russian Central Bank efforts to maintain a façade of economic stability while implementing policies that likely increase structural instability.
On July 17, Bloomberg reported — citing the Central Bank’s latest monthly bulletin — that the seasonally adjusted annual inflation rate (SAAR) in Russia dropped to 4% in June 2025, aligning with the target inflation rate. However, SAAR is a short-term metric, and its decline is unlikely to benefit the economy in the long run, ISW noted.
The Central Bank's efforts to keep the ruble strong enhance Russia’s purchasing power abroad — making imported goods like equipment and technology cheaper in rubles. This lowers production costs and reduces inflationary pressure on companies reliant on imports. A strengthened ruble also softens the blow of Western sanctions by making parallel imports cheaper and more accessible.
In this environment, ISW assesses that secondary sanctions — which Donald Trump’s team has signaled as a possibility — could likely further harm the Russian economy. These sanctions will erode Russia’s oil revenues and its ability to benefit from a strong ruble through cheap imports, both of which are critical to financing the Kremlin’s war in Ukraine.
The report also highlights Russia’s soaring military compensation and ongoing labor shortages, which are likely to further destabilize the economy regardless of Kremlin statements. The Kremlin’s strategy of offering large signing bonuses to volunteer soldiers and simultaneously expanding its defense industry requires massive financial outlays — both for recruiting fighters and staffing its arms industry.
Given the high Russian battlefield losses, authorities have already had to increase regional and federal payouts to incentivize military service over civilian jobs. But this competition for labor between defense and civilian sectors is pushing up average wages and service prices overall, ISW noted.
These factors — combined with labor shortages in both sectors — likely explain the growing disparity between goods and services prices recorded by the Central Bank. This limits Russia’s economic growth and its capacity to expand its military and defense production.
ISW maintains the opinion that Russia cannot indefinitely offset current troop losses without a forced mobilization of reservists - something Vladimir Putin appears unwilling to implement. At the same time, the Russian economy cannot afford to keep increasing recruitment payments.
“Russia is essentially burning the candle from both ends,” ISW concluded.
“It is simultaneously loosening monetary policy to stimulate short-term growth while ramping up budget spending to sustain its war effort. This strategy will likely hurt the economy—eroding consumer purchasing power, devaluing the ruble in the medium and long term, and generating deeper macroeconomic instability.”
Meanwhile, Russian bankers have begun voicing private concern over rising rates of overdue and unpaid loans — despite official Central Bank reassurances about stability.
On July 17, Bloomberg reported that unnamed executives at “some of Russia’s largest banks” were quietly discussing the possibility of requesting state assistance should these “bad” loans continue to rise in 2025.
Bloomberg data shows that the share of bad loans issued by Russian banks has increased by 1.2% in 2025 and may rise from 4% to 6–7% by 2026.
ISW stressed that the collapse of any major Russian bank would severely undermine Putin’s long-standing narrative that neither the war in Ukraine nor Western sanctions are damaging Russia’s economy.