Russian officials engaged in a public dispute on Friday over strategies to stimulate the economy, amid a slowdown more than three years into the country's military campaign in Ukraine.
Moscow had shown unexpected economic resilience in 2023 and 2024, despite the West's sweeping sanctions after the Kremlin sent troops into Ukraine in February 2022, with massive state spending on the military powering a robust expansion.
High defense spending has propelled growth and kept unemployment low despite fueling inflation. At the same time, wages have gone up to keep pace with inflation, leaving many workers better off.
But economists have long warned that heavy public investment in the defense industry is no longer enough to keep Russia's economy growing.
Businesses and some government figures have urged the central bank to further cut interest rates to stimulate activity.
"The indicators show the need to reduce rates," Deputy Prime Minister Alexander Novak said at the St. Petersburg International Economic Forum, Russia's flagship economic forum in the country's second-largest city.
"We must move from a controlled cooling to a warming of the economy," said Novak, who oversees Russia's key energy portfolio in the government.
He described the current economic situation facing the country as "painful."
The call for more cuts to borrowing costs comes a day after Moscow's economy minister warned the country was "on the verge of a recession."
"A simple and quick cut in the key rate is unlikely to change anything much at the moment, except for... an increase in the price level," the central bank's monetary policy department chief Andrey Gangan said.
The central bank lowered interest rates from a two-decade high earlier this month, its first cut since September 2022.
The bank, which reduced the rate from 21% to 20%, said at the time that Russia's rapid inflation was starting to come under control but monetary policy would "remain tight for a long period."
The central bank has resisted pressure for further cuts, pointing to inflation of around 10%, more than double its 4% target.
Russia's gross domestic product (GDP) growth slowed to 1.4% year-over-year in the first quarter, the lowest quarterly figure in two years.
Russian President Vladimir Putin, who has typically been content to let his officials argue publicly over some areas of economic policy, is set to speak on Friday afternoon at the plenary session of the economic forum.
Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine have put more income into the country's poorer regions. But over the long term, inflation and a lack of foreign investments remain threats to the economy, leaving a question mark over how long the militarized economy can keep going.
Economy Minister Maxim Reshetnikov on Thursday warned that Russia's economy is on the verge and whether the country would slide into a recession or not depends on monetary policy decisions.
"The numbers indicate cooling, but all our numbers are (like) a rearview mirror. Judging by the way businesses currently feel and the indicators, we are already, it seems to me, on the brink of going into a recession," Reshetnikov said.
Economists have warned of mounting pressure on the economy and the likelihood it would stagnate due to a lack of investment in sectors other than the military.
"Going forward, it all depends on our decisions," Reshetnikov told a forum session, according to Russian business news outlet RBC.
In addition to keeping faith in Russia's 4% inflation target, Reshetnikov said he was in favor of "giving the economy some love," addressing Central Bank Governor Elvira Nabiullina, who was on the same panel.
At Thursday's session, Nabiullina and Russia's Finance Minister Anton Siluanov gave more optimistic assessments.
Nabiullina said the current slowdown in GDP growth was "a way out of overheating."
Siluanov spoke about the economy "cooling" but noted that after any cooling, "the summer always comes."
