President Vladimir Putin picked a member of his inner circle to lead Russia’s central bank after government calls for lower borrowing costs fell on deaf ears.
Putin nominated Elvira Nabiullina, 49, a former economy minister, to take over from bank Chairman Sergey Ignatiev, who retires June 23 when his third and final term ends. If approved by lawmakers, she’ll become the first woman to head a Group of Eight monetary authority.
Nabiullina will need to navigate a clash between the government and the central bank over interest rates as Russia’s $2 trillion economy expands at the weakest pace since a 2009 contraction and officials look for ways to boost growth. Putin, who brought her with him to the Kremlin when he switched from his role as prime minister last May, has said borrowing costs “substantially” higher than inflation are a source of concern.
Nabiullina is “very aligned” with the president, said Tim McCarthy, head of asset management at Valartis Bank in Geneva, which has more than $1 billion invested in emerging markets. “Putin has been pressing for easier monetary policy. Nabiullina may make moves in that direction.”
The ruble fell after the announcement yesterday. The currency was 0.1 percent weaker against the dollar at 30.7210 as of 11:08 a.m. in Moscow. The Micex Index of 50 stocks fell a second day, dropping 0.3 percent to 1,496.73.
Ignatiev’s replacement will have to bridge a widening gap between the central bank’s efforts to fight inflation and calls for monetary easing by top government officials including Deputy Economy Minister Andrei Klepach and First Deputy Prime Minister Igor Shuvalov. The regulator’s reluctance to cut interest rates has sparked a “huge argument” with the government, Shuvalov said in a Jan. 18 interview.
Gross domestic product expanded 3.4 percent in 2012, down from 4.3 percent a year earlier as investment sagged and the country recorded $56.8 billion in net capital outflows. Consumer prices rose 7.3 percent from a year earlier in February, the fastest pace in 18 months.
Nabiullina was born in Ufa, capital of the republic of Bashkortostan in the southern Urals Mountains, almost 1,200 kilometers (750 miles) east of Moscow. In 1986, she graduated from Moscow State University with a degree in economics.
In the early 1990s she worked at the Russian Union of Industrialists and Entrepreneurs, a lobby group for the country’s biggest businesses. From 1995 to 1998, she served at the Economy Ministry, rising to the rank of deputy minister before leaving for jobs in the private industry.
She returned in 2000, working until 2003 as a first deputy to then-Economy and Trade Minister Herman Gref before becoming head of the Center for Strategic Research, which helped develop Putin’s economic policy during his first two terms.
As minister from September 2007 to May 2012, Nabiullina helped conclude Russia’s talks to join the World Trade Organization last year after an almost two-decade wait.
“I want to thank you for the trust you’re placing in me with this nomination, understanding how responsible, difficult, and professional this work is,” Nabiullina said yesterday at a meeting with Putin and Ignatiev.
Her nomination comes at a time of transition at the top of G-8 central banks. Those of Japan, the U.K. and Canada will shortly change hands, while Federal Reserve Chairman Ben S. Bernanke’s second term ends in January and former colleagues say it isn’t likely he’ll want to stay.
Elsewhere in eastern Europe, Hungarian Prime Minister Viktor Orban’s decision to install his former Economy Minister Gyorgy Matolcsy to lead the country’s central bank has helped push the forint to a nine-month low on concern over the direction of monetary policy.
Putin selected Ignatiev, ranked last year as Europe’s best central banker by Global Finance Magazine, to take over Bank Rossii in 2002 as inflation was running at 17 percent. In his 11 years at the regulator, the bank has committed to switching its focus from the ruble exchange rate to price growth and plans to begin formal inflation targeting in 2015.
A proposal for central banks to adopt a target of nominal GDP, aired by Bank of England Governor-designate Mark Carney in December, was discussed on the sidelines of the Group of 20 finance ministers in Moscow last month, Russian official Ksenia Yudaeva said Feb. 21.
Bank Rossii held the refinancing rate at 8.25 percent for a fifth month in February, warning of the threat of faster inflation and defying government calls for lower borrowing costs. It meets March 15 and will probably leave rates unchanged again, according to a Bloomberg poll of 28 economists.
While Nabiullina’s nomination over a central bank insider such as First Deputy Chairman Alexei Ulyukayev suggests “an enhanced risk” of a change in monetary policy, it’s too early to tell what direction the bank will take under her stewardship, according to Jacob Nell, chief economist for Russia at Morgan Stanley (MS) in Moscow.
“She is a good economist and listener, and her institutional role has changed, so I think it would be premature to jump to any strong conclusions,” he said by e-mail.
Ulyukayev, who’d been seen as the most likely nominee by nine of 15 economists polled by Bloomberg before Nabiullina’s candidacy had been revealed, said yesterday that he hoped for continuity in monetary policy, the state-run RIA Novosti news service reported. Ignatiev will stay on as an adviser to Nabiullina at her own request.
As investors wait to see what her appointment will bring, the assumption will probably be looser monetary policy, according to Benoit Anne, London-based head of emerging-market strategy at Societe Generale SA. (GLE)
“This is probably going to reinforce expectations of a more dovish policy bias, which is positive for local bond exposure,” he said by e-mail. It may “undermine the ruble, at least in the near term, as lower interest rates decrease the carry-trade appeal.”
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