Putin’s Crisis Fighter Sees Global Markets Coping With Troubles

  • Central banker Nabiullina says volatility declining world over
  • Russia now fully adapted to sanctions, economy growing again

Markets around the world have become increasingly adept at coping with ceaseless political turmoil, according to Russian central bank Governor Elvira Nabiullina, who knows a thing or two about crisis management.

Since Russia annexed Crimea from Ukraine in 2014, she’s helped guide the country through shock after shock, notably the double blow of Western sanctions and a collapse in oil prices that triggered the biggest ruble meltdown and longest recession of this century. Now Russia is growing again, at the quickest pace in more than three years, and inflation is at an all-time low.

Elvira Nabiullina on Sept. 7.

Photographer: Andrey Rudakov/Bloomberg

“In the global economy, and not just in the Russian economy, there’s been some adjustment to various kinds of uncertainty, including those related to geopolitical factors,” Nabiullina said in an interview with Bloomberg Television in Moscow on Thursday. “We see that the market has reacted relatively calmly to Brexit. And on the whole, the level of such volatility is fairly low.”

Even the specter of a possible trade war between the world’s two largest economies, the U.S. and China, and mutual threats involving nuclear weapons from unpredictable leaders in North Korea and Washington, have had muted impact on global markets. A measure of expected stock volatility known as the fear index, the VIX, is on track to post its lowest annual average on record.

Russian assets have become the darling of emerging markets, riding the appeal of so-called carry trades, despite growing tensions with the U.S. amid multiple investigations into alleged Kremlin meddling in last year’s election.

Oil, Sanctions

For Nabiullina, 53, a former economy minister and aide to President Vladimir Putin, the pain of financial penalties imposed by the U.S. and the European Union pales in comparison to the plunge in oil, Russia’s main export.

“The economy as a whole has already adapted to sanctions,” she said in the library at the central bank’s headquarters. “There was a two-year period of adaptation,” she said. “And what’s very important is that the economy has started to grow even when oil prices aren’t very high.”

Still, the Bank of Russia has had to account for deepening strains in geopolitics and the threat they present to the ruble. Following its meeting in July, when the central bank halted its easing cycle after three rate cuts, policy makers pointed to “elevated geopolitical risks” as a factor that could result in “negative implications for exchange-rate and inflation expectations.” 

Rate Cut

The regulator has said that rising international tensions and a weaker currency prompted non-resident investors to “actively” sell off ruble-denominated bonds on the secondary market starting in mid-June. Nabiullina said North Korea will now be added to the list of items to discuss when she and her colleagues meet next week to consider cutting rates by 25 or 50 basis points.

“No matter how negatively external factors are affecting the Russian economy, we’ve prepared all the tools that allow us to maintain financial stability,” Nabiullina said. “We have everything necessary to react to any changes.”

But it’s not just the crises emanating from outside Russia that Nabiullina has taken in stride. Last week, the central bank stepped in to rescue one of the country’s largest private lenders, Bank Otkritie FC, and guarantee all of its deposits.

She said the bank’s handling of the bailout reassured depositors across the country, “but this doesn’t mean that there won’t be problems for specific banks or that we’ve finished our financial clean-up.” In the last three years, the central bank has closed more than 300 private lenders, a third of the total, to weed out what it calls dubious transactions and strengthen the industry.

Ruble Rally

Since the central bank announced its emergency takeover of Otkritie on Aug. 29, the ruble has gained more than 3 percent against the dollar, the most in the world, and Russia’s main stock index, the Micex, has advanced 1 percent.

Nabiullina said that while Otkritie’s failure was a “one-off” in the sense that it was due to a flawed business model rather than a weakness in the system, the central bank stands ready to intervene again as needed. The priority now, she said, is to promote competition in an industry that’s dominated by a handful of state-run giants and return Otkritie to private ownership.

“Our job is to recapitalize the bank, develop an understandable, transparent business model, make it attractive to investors and bring it to market,” Nabiullina said.

— With assistance by Anna Andrianova, and Andrey Biryukov

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