This is the second time in less than 10 years that the Governor of the Central Bank of Russia, Elvira Nabiullina, is leading the economy in times of upheaval.
In 2014, the Russian ruble plummeted and inflation skyrocketed when Elvira Nabiullina (58) had been in office for almost a year. She decided to raise interest rates sharply. The risky move slowed the economy, depressed prices and earned her international recognition as an uncompromising politician.
Among the governors responsible for keeping prices and the financial system stable, Nabiullina is increasingly known for using traditional policies to govern an economy often influenced by oil prices. In 2015 she was voted Governor of the Year by Euromoney magazine. Three years later, Ms Christine Lagarde – then Director General of the International Monetary Fund (IMF) – also commented that Nabiullina was a person “who can get central bank attention”.
Now she’s once again responsible for getting Russia’s economy through tough times and keeping the financial system stable in the face of Western sanctions. Over the years, she has helped Russia build an economic fortress that can withstand outside influences.
Nabiullina has helped the Russian ruble stage an impressive recovery after losing as much as 25% of its value in the last few days of February. The Central Bank of Russia has taken aggressive measures to stem capital outflows from the country, stem the market panic and prevent banks from running out of capital.
In late April, the Russian parliament confirmed Ms. Nabiullina for the next five-year term after Russian President Vladimir Putin nominated her for a third term: “She is a symbol of the stability of the financial system, Russia,” said Elina Ribakova, an economist at the Institute of International Finance (IIF).
During the 2014 crisis, she turned a challenge into an opportunity. At the time, the Russian economy was hit by two simultaneous shocks: the collapse in oil prices (because the US increased production and Saudi Arabia refused to reduce production), causing Russian oil revenues to fall, and economic sanctions that Russia subsequently put economic pressure on the annexation of Crimea.
As the ruble plummeted, Nabiullina abandoned traditional policies – such as issuing large amounts of foreign exchange reserves to support the exchange rate – to focus on controlling inflation. It raised interest rates to 17% and stayed at high levels for many years.
It’s a painful change. Russian GDP fell for the next 1.5 years. By mid-2017, however, it had achieved what seemed far-fetched – inflation was below 4% – the lowest post-Soviet level.
“She is the epitome of the modern governor,” said Richard Portes, an economics professor at the London Business School. He attended many seminars with Mrs. Nabiullina.
“She did what she had to do,” he said, even in a difficult political environment. “For comparison, look at Turkey.” For many years, political interference in central bank operations has seen inflation spiral out of control here, hitting 70% this month.
Under the leadership of Mrs. Nabiullina, the Central Bank of Russia is constantly modernizing its policy. They improve communication by planning important decisions, making political forecasts, meeting with analysts and giving press interviews. The Central Bank of Russia is considered the country’s main economic brain and attracts economists from the private sector.
During the annual meeting in St. Petersburg, the body attracts economists from all over the world. Ms. Nabiullina also attends many international events such as the annual Fed Symposium in Wyoming and the annual Governors’ Meetings organized by the Bank for International Settlements in Switzerland.
She is described as charming, focused, well-prepared and a lover of history and opera. She was born in Ufa – a city more than 1,100 km east of Moscow, famous for its heavy industry. Nabiullina attended Moscow University – one of the most prestigious schools in the country – and married an economist.
With her experience in conducting monetary policy, Ms. Nabiullina was praised for her active clean-up of the banking sector. In the first five years of her tenure, she revoked about 400 licenses and closed nearly a third of Russia’s banks. This aims to weed out weak institutions that they perceive to be conducting “non-transparent” transactions.
“Fighting corruption in the banking industry is for the brave,” said Sergei Guriev, a Russian economist now based in Paris.
Build a fortress
Nabiullina has been a senior official in Putin’s government for the past two decades. She was economic adviser to the president for more than a year and then moved to governor in 2013. She served as Economic Development Minister when Mr Putin was Prime Minister.
“She has great faith in the government and the president,” said Sofya Donets, an economist at Renaissance Capital in Moscow. She worked at the Central Bank of Russia from 2007 to 2019. In recent years, all kinds of decisions in the financial sector have been delegated to the central bank.
That trust was built as she helped Russia build an economic fortress to withstand Western sanctions. In 2014, the US blocked many large Russian companies from accessing the country’s capital market. However, these companies have a large amount of foreign currency debt, which warns of their ability to repay.
Nabiullina has tightened the use of dollars in business, making businesses and banks less vulnerable if Washington further restricts its access to the dollar. It also increased the central bank’s foreign exchange reserves in gold, the euro and the yuan. The USD share of reserves has fallen to 11% from more than 40% previously. Last month she said that even if sanctions freeze its foreign exchange reserves, Russia still has ample reserves of gold and yuan.
They have also created an alternative to SWIFT and have been developing it for several years. The central bank also changed the payment infrastructure in processing card transactions in the country. Therefore, the withdrawal of Visa and Mastercard from Russia will not have a major impact.
The War Economy
Recent Western sanctions have forced them to abandon their favored policies. Instead, Nabiullina doubled interest rates to 20%, imposed capital controls to limit cash outflows from Russia, closed the stock market and eased regulations on banks.
These measures stopped the initial panic and helped the ruble recover. However, capital controls were only partially lifted.
On April 29, the Central Bank of Russia cut interest rates to 14%. This is a signal that they are starting to change their policies to limit the impact of sanctions on households and businesses. Inflation in Russia is expected to rise to 23% this year. And GDP could fall by 10%.
“We are in an area of extreme volatility,” Nabiullina said.
Ha Thu (according to the New York Times)