Elvira Nabiullina is declining to follow in the footsteps of Mark Carney and Haruhiko Kuroda and become an agent of change at Russia’s central bank.
Nabiullina, backed by lawmakers to become the first woman to head a Group of Eight monetary authority in June, pledged continuity yesterday and deflected calls from commercial lenders for cheaper cash. President Vladimir Putin on April 7 said the country, where most people say the cost of living is their biggest concern, will keep moving toward formally targeting inflation with his former economic aide at the helm.
Nabiullina, 49, moved quickly to defuse a debate among politicians about Bank Rossii’s mandate, signaling that she would prolong outgoing Chairman Sergey Ignatiev’s mission to rein in inflation even as the economy loses momentum. That stance sets her apart from the new leaders of global monetary policy including Carney and Kuroda, who advocate a more ambitious approach to stimulate growth.
“Experience shows that continuity and predictability in policy are important factors for trust,” Nabiullina told lawmakers yesterday. “And in this area, sharp moves are impossible.”
The first change of leadership in more than a decade at Bank Rossii, which controls the world’s fourth-largest reserves, comes amid unprecedented easing at the world’s four biggest developed-market central banks as the U.S. Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England all work to boost their economies.
The Fed’s balance sheet under Chairman Ben Bernanke has reached a record $3.2 trillion, more than triple its size in 2007. ECB President Mario Draghi has pledged to do everything needed to defend the euro.
In the U.K., Carney’s arrival at the BOE in July coincides with a drive by the government to make the central bank’s remit more flexible. BOJ Governor Kuroda last week announced a plan to purchase 7.5 trillion yen ($75.8 billion) of bonds and double the monetary base in two years.
While Kuroda joined Prime Minister Shinzo Abe’s battle against 15 years of deflation, Nabiullina arrives with inflation that was 7 percent in March, remaining above the 6 percent upper edge of the central bank’s target range for a seventh month. The rate will fall to 5.9 percent in the fourth quarter, the median estimate of 17 economists in a Bloomberg survey shows.
Still, inflation is on a downward trajectory and fourth-quarter gross domestic product rose 2.1 percent from a year earlier, the weakest pace since a 2009 recession. That’s strengthening the case for looser policy even before Nabiullina takes over the central bank’s leadership.
Investors are betting on rate cuts, regardless of the change. The three-month MosPrime rate, at which large Moscow banks say they’re willing to lend to one another, may fall 20 basis points, or 0.2 percentage point, from 7.24 percent over the next three months, according to forward-rate agreements tracked by Bloomberg.
Monetary easing has started in Russia, the biggest emerging-market economy to raise borrowing costs last year. Bank Rossii cut some less-used interest rates last week, in what Ignatiev said was a first step toward lower borrowing costs.
“We’re expecting balanced policy, meaning she’ll be focused on containing inflation, since that’s the central bank’s main job,” Mikhail Zadornov, a former finance minister who was also considered for the job, said in an interview. “The central bank definitely won’t forget about economic growth, either.”
Nabiullina, who served as economy minister in Putin’s government from 2007 to 2012, has so far indicated caution toward an expanded mandate for Bank Rossii.
While the government and lawmakers are debating whether the central bank should have formal responsibility for ensuring economic growth, Nabiullina on April 3 told a parliamentary committee that the central bank’s “main tasks have been set” and that policy makers should operate “in accordance with those tasks.”
Most Russians named rising prices as their biggest concern, topping corruption and poverty, in a February poll by the Moscow-based Levada Center. Combating inflation is the government’s top priority, even at the expense of short-term growth, Putin told a conference in Moscow on Oct. 2.
Russia’s “ruling elite may be more interested in an independent central bank that keeps inflation low,” Tatiana Orlova, a strategist at Royal Bank of Scotland Group Plc in London, said in an e-mail. Promoting “growth at the cost of higher inflation could further decrease its popular support.”
Nabiullina’s speech in front of lawmakers yesterday was “market-friendly,” according to Natalia Orlova and Dmitry Dolgin, economists at Alfa Bank in Moscow. “Though her words still need to be backed up by actions, our initial impression is positive,” they wrote today in a research note.
Nabiullina, from the city of Ufa by the Ural mountains where Europe turns into Asia, became a deputy to then-Economy and Trade Minister Herman Gref, now chief executive officer of Russia’s largest lender OAO Sberbank (SBER), as Putin appointed fresh faces upon coming to power in 1999.
She joined the government after a stint as deputy chief executive at Promtorgbank, her only job in the banking industry amid a career spent in the government and at lobby groups. She will probably be “very conservative” at the central bank, said Kakha Bendukidze, a Georgian banker and former government minister, who hired Nabiullina at Promtorgbank in 1998.
“She knows that there is no way to help growth using monetary policy, it’s a deadlock,” Bendukidze said in a telephone interview April 4. “She is very smart and well balanced, with a big understanding of how economics work.
Concerns that her background might lead to a ‘‘politicization’’ of the central bank have eased, according to Jacob Nell, chief economist for Russia at Morgan Stanley. ‘‘Although I think there’s every reason to think that Nabiullina will prove to be an effective and credible central banker, she still has to earn that credibility,’’ he said by phone.
Nabiullina said the ‘‘excessive availability’’ of loans could threaten the creation of bubbles. The central bank ‘‘can’t risk’’ its previous achievements on inflation and economic stability, even as it keeps the ‘‘needs of economic growth and employment’’ in mind, she said in parliament.
‘‘Nabiullina won’t go to the central bank with the goal of getting the printing presses running,’’ Alexander Voloshin, a former chief of staff to Putin, told reporters April 5. ‘‘It’s clear that it doesn’t really fit into the way she sees things.”
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