As with most central banks, the Central Bank of Russia’s formal role is to combat inflation and ensure economic stability.
In reality, nothing could be further from the truth. Even as the rouble reels from its latest record fall, Russia is heading for a mix of the 1990s economic malaise and huge rate hikes in the face of heavy sanctions.
It is the second time the floor has fallen out from under the rouble during Elvira Nabiullina’s tenure as central bank governor since 2013. But, strangely, the international finance community appears to hold her in high regard, marking the governor out as perhaps the sole Kremlin official still respected in the West.
The Financial Times, for example, this month described her as “a technocrat,” who “has shown steely determination since taking up her job”. Valeria Gontareva, Ukraine’s central bank governor from 2013-2017, labelled Nabiullina “very professional”, saying she could still “be a respected person” if she resigned.
Nabiullina’s reputation rests on her actions in 2014-2016, when Russia confronted Western sanctions imposed over its initial invasion of Ukraine and collapsing oil prices. Her ultra-orthodox macro-economic policy comforted foreign investors, with her even winning Euromoney’s ‘Banker of the Year’ in 2015. Russia returned to international bond markets just 30 months after annexing Crimea.
Nabiullina would often delight Russia-watchers and central bank policy nerds by wearing brooches as market indicators, adapting ex-US Secretary of State Madeleine Albright’s tactic. After Nabiullina announced capital controls last month, one of the best-known frontier market economists told The Guardian, “We know she hates the war as she was wearing black”.
Nevertheless, Putin nominated Nabiullina to a third term on 18 March; her confirmation will be a formality.
This should not come as a surprise — Nabiullina has always been a complicit member of Putin’s inner circle. Investors, the financial press, and those in the small world of central bank policy have simply failed to acknowledge this association.
A year into the role, Nabiullina enabled the bailout of Russian state oil giant Rosneft after it was cut off from US and EU long-term debt markets by sanctions. Rosneft had billions of dollars of debts due that December, owed to domestic and foreign lenders who financed its take-over of TNK-BP.
The solution was for Rosneft to issue a whopping 625 billion roubles of local debt; the Central Bank then included these notes as collateral for dollar loans, handing Rosneft the dollars it needed.
The rouble cratered, even as Nabiullina nearly-doubled the baseline interest rate. Her actions made Russians poorer, and investments more expensive.
Rosneft is run by Igor Sechin, Putin’s ex-chief of staff and perhaps Russia’s most powerful oligarch. He is not a man one says no to easily – Alexei Ulyukayev, who is, like Nabiullina, a former economy minister, is serving an eight-year hard labour sentence for merely threatening to do so. Nabiullina, by her own admission did not even try.
Nabiullina’s sole mandate is for regime stability. It is time the market and media took heed.