Bank of Russia Seen Changing Tack After Leadership Shakeup

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Ksenia Yudaeva
Ksenia Yudaeva, who remains a first deputy to Governor Elvira Nabiullina and will focus on forecasting, strategy and financial stability, was in charge of monetary policy as the regulator lurched from one crisis to another after Russia annexed Crimea from Ukraine last year. Photographer: Simon Dawson/Bloomberg

The Kremlin is clearing the decks for the Russian central bank to help fight an economic slump and undo the damage wrought by the ruble’s steepest decline since 1998.

The choice for the biggest leadership change since Governor Elvira Nabiullina took charge in June 2013 “wasn’t a chance appointment” and will probably result in changes to monetary policy, Andrey Belousov, a Kremlin economic aide, told reporters in Moscow today. The ruble extended gains a day after Dmitry Tulin, a former central banker who also worked at the International Monetary Fund, was named to replace Ksenia Yudaeva as the first deputy governor in charge of monetary policy.

“The central bank now faces new challenges, and the tasks are more complex than during the previous period,” Belousov said. “They consist of the need to stabilize and hold the exchange rate, which has now entered a kind of stabilization zone, while also accomplishing a reduction of interest rates because current rates make it impossible to do business in Russia.”

Distress in the banking industry and Russia’s looming recession will complicate the task of unwinding the central bank’s emergency measures to steady the currency and the financial system. While Goldman Sachs Group Inc. said the nomination may spell relief for the ruble, it’s also a sign of “some political pressure on the current central bank team,” according to Natalia Orlova, chief economist at Alfa Bank in Moscow.

Currency Rout

The Bank of Russia has struggled to contain the country’s worst currency crisis in almost 17 years. While policy makers deployed emergency steps including interest-rate increases and spent $88 billion in interventions to prop up the currency, Russian President Vladimir Putin last month scolded the regulator for not reacting to the crisis more quickly.

Nabiullina in her statement announcing Tulin’s appointment yesterday said that the central bank will maintain its strategic and tactical policy goals. Even so, the move has thrown uncertainty into the monetary stance, according to Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow.

That’s “not always a positive for the market,” he said. “For the market, though, the key is whether monetary policy priorities and transparency, set by Ksenia Yudaeva’s team, will remain in place or whether we should expect more changes.”

Sberbank, Sherpa

Yudaeva, a 44-year-old with a PhD in economics from the Massachusetts Institute of Technology, was previously a chief economist at OAO Sberbank, Russia’s biggest lender, and the country’s Group of 20 sherpa. Yudaeva, who remains a first deputy governor and will focus on forecasting, strategy and financial stability, was in charge of monetary policy as the regulator lurched from one crisis to another after the crisis in Ukraine flared last year.

The ruble weakened 46 percent against the dollar last year. On Dec. 16, the central bank took its biggest step to shore up the currency, raising its key interest rate to 17 percent from 10.5 percent in a surprise announcement just before 1 a.m. in Moscow that day.

A smaller step would have been sufficient if rates were raised earlier, Economy Minister Alexei Ulyukayev said in an interview with Bloomberg TV yesterday. Ulyukayev oversaw monetary policy as a first deputy central bank chief until 2013.

The ruble appreciated as much as 2.7 percent against the dollar and was trading 0.1 percent stronger at 64.6995 versus the U.S. currency as of 5:46 p.m. in Moscow. It’s the world’s second-worst performer this year among more than 170 currencies tracked by Bloomberg, surpassed only by the Belarusian ruble.

‘Excess Volatility’

The leadership change “is an acknowledgment they can’t allow the extreme excess volatility in the ruble compared to the oil price that we saw in December,” Clemens Grafe, chief economist in Moscow at Goldman Sachs, said by phone. “People will take comfort by this acknowledgment that the top bench is being further strengthened.”

Tulin, 58, joined the Soviet central bank in 1978 after graduating from the Moscow Financial Institute. He later served as the Russian monetary authority’s deputy chairman in the middle of the 1990s and in 2004-2006. Nabiullina described him as a “very responsible” official, who has a “deep understanding” of monetary policy.

Tulin is “competent in monetary policy,” MDM Bank Chairman Oleg Vyugin, a former central banker, said in an interview. “The fact that Tulin came to central bank is very positive news. He has very clear views and never abandons his point of view.”

The central bank “is trying to signal willingness to reestablish communication with the market that was broken in mid-December by the very sharp ruble depreciation that caused a panic in the banking sector,” Alfa Bank’s Orlova said by e-mail today. “The key concern among market participants was regarding the central bank’s ability to manage the situation.”

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