Sergei Ignatiev, Russia’s current central banker, will end his third mandate on 24 June this year, after 11 years as the head of the Bank of Russia. Putin has found a replacement for Ignatiev by appointing, in March, Elvira Nabiullina, Putin’s close ally and economic advisor. This nomination seems to hide Putin’s intentions to directly influence central bank’s monetary policy over the coming years. Maria Eugenia Filmanovic investigates.
Ignatiev’s departure comes at a very delicate moment in the history of the Bank of Russia. The Central Bank is currently transitioning towards an inflation-targeting framework – due in 2015 – which aims at directly controlling inflation while anchoring investors’ expectations. This would be a very significant achievement for an institution that struggled with hyperinflation in the early 1990s and in the immediate aftermath of the 1998 rouble financial crisis. Ignatiev’s replacement has also come at a moment in which outspoken businessmen and political officials have directed unusually harsh criticisms at Mr Ignatiev’s most recent monetary tightening policy.
Analysts have long discussed potential replacements for Mr Ignatiev’s position, but Ms Nabiulla’s appointment revealed the directions political apparatchiks want the Central Bank of Russia to pursue in order to influence Russia’s future economic scenarios. As growth rates see a faster decelerating trend (estimated at 3-4% over the coming two years, in contrast to the 7% GDP average increase Russia experienced over the last decade), businessman and government officials have called for a looser monetary policy aimed at creating a short term economic stimulus accompanied with lower interest rates, in order to boost industrial production. However, because of significant injections of liquidity in money markets throughout the 2008-2010 financial crisis, the IMF and the Bank of Russia have agreed on the need for a tighter fiscal and monetary policy in Russia ever since 2010.
Of all the candidates, Mr Ulyukayev, a part-time poet and Mr Ignatiev’s deputy since 2004, would have been a wiser choice. The Central Bank’s First Deputy Chairman, responsible for monetary policy, could have been critical in continuing his boss’ long track-record of lower inflation, stable exchange rate and tighter money while attenuating the risk of a possible economic overheating in Russia. Mr Ulyukayev’s nomination could have reassured investors by signalling continuity along Mr Ignatiev’s roadmap. Yet because of his status as an “insider,” Ulyukayev’s nomination might have not calmed all criticisms directed at the Bank of Russia.
This is why Putin’s “surprise” – as he himself called the appointment – defines Ms Nabiullina, a 49-year old ethnic Tatar and soft-spoken former economic minister, as a compromise choice. She is trusted by Putin and his allies – which makes her very unlikely to resist Kremlin’s pressures – but is also an extremely well-qualified technocratic economist who doesn’t prepare for radical change in the Central Bank’s monetary policy conduct.
In her new role as Russia’s central banker, Ms Nabiullina needs to find a balance between her political ties and Russia’s need for the eradication of persistent inflation. However, because she publicly declared her intentions to revise the Bank of Russia’s inflation-targeting mandate, opting instead for a growth mandate, it seems that her political liens are likely to constitute a serious threat to the Central Bank Independence (CBI). CBI, especially in Russia, remains fundamental to the insulation of monetary policy from political pressure geared at delivering short-term economic growth at the expense of long-term inflationary risk.
What is certain is that Ms Nabiullina’s appointment is making history. In June, she will become the first woman to head the Group of Eight central bank. But, in Russia, she should be extremely careful not to go down in history as the Central Banker responsible for the return of high inflation in the 2010s.