Nabiullina proposed as new Russian central bank chief

By bne IntelliNews March 13, 2013

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Russian President Vladimir Putin has proposed a former economy minister and current presidential economics advisor Elvira Nabiullina as the new governor of the Central Bank of Russia - a choice that has been welcomed by respected former finance minister Alexei Kudrin and some analysts, though criticised by others worried about the independence of the bank.

Nabiullina's nomination must now be approved by the Duma, but this is widely seen as a formality. Nabiullina will replace outgoing Sergey Ignatiev by June; she has said she will ask the widely respected Ignatiev to stay on as her adviser.

"I intend to nominate Ms Nabiullina as Chairman of the Central Bank of Russia," Putin said on March 11. "This is due to the proposal that the... CBR is not just a bank, at least not a commercial bank, it is the primarily regulator of the financial system and it is the largest institute of macroeconomic policy," Putin said at a meeting with Ignatiev and Nabiullina in Novo-Ogarevo, reports Reuters.

Nabiullina said: "I would like to ask if the State Duma agreed to endorse my candidacy for Sergey to stay to work in the system of the Central Bank as adviser to the chairman of the central bank. "

Putin supported the proposal and promised to reward Ignatiev for his years of service. "It was interesting and useful to work with you all these years... The most difficult and dangerous for our economy during the global financial crisis have been passed with minimal losses... Of course, your work in this position will be marked by the respective state awards."

As one of Putin's inner circle, her appointment has caused some concern. "The decision by President Putin to nominate his economic advisor, Elvira Nabiullina, to be the next governor of the Central Bank of Russia is a blow to hopes for a more independent monetary policy over the coming years but is unlikely to lead to major changes in the current framework. Policy is likely to be looser than would otherwise have been the case, but even large interest rate cuts are unlikely to do much to stimulate a flagging economy," writes Capital Economics.

Others were more fulsome in their praise. "A good candidate. I wish her success!" the former finance minister Kudrin, another leading candidate, wrote on Twitter.

Market watchers also welcomed Nabiullina's appointment, which is seen as vital for Russia's development path. The government is pushing for growth after the economy slowed sharply in the last months and wants the CBR to cut rates to stimulate more growth.

However, the CBR has so far resisted the calls for a rate cut (it is due to meet on March 15 to decide on rates and is unlikely again to cut), prioritizing bringing inflation down from its current 7.3% to inside the CBR's range of 4-5%.

In this sense, Nabiullina sits in the middle. As a former economy minister, she is committed to growth, but she is also a conservative and cautious manager. Moreover, Putin said this week explicitly that there would be no rate cuts.

However, the CBR has room to reduce things like the mandatory reserve requirements on banks, which would have the effect of injecting more money into the economy and Nabiullina is likely to turn to these sorts of mechanisms to boost growth. Given that inflation traditionally falls in the summer when she will take over, she will have some more wiggle room than Ignatiev currently enjoys to play these sorts of games.

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