Member access

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 
The feature you requested does not exist. However, we suggest the following feature:

Putin stands by hawkish Russian central bank - for now

11/23/2014 | 02:05am US/Eastern
Russia's Central Bank Governor Nabiullina applauds during the VTB Capital

With Russia's economy battered by economic sanctions and plunging oil prices, President Vladimir Putin has allowed the central bank to administer strong medicine, sharply raising interest rates even as it freed the rouble to float.

Such tough measures may well help push the country deeper into recession next year, but have so far staved off financial panic, runaway inflation or a currency meltdown like the one that helped catapult Putin into power in the 1990s.

Those who follow the central bank say the hawkish moves are a result of Putin, known for closely managing Russia's machinery of power, giving the bank's technocrats free rein.

"There is ongoing criticism of the central bank and of the whole government being Putin's lap dog," said a high-ranked government source. "But all things considered, the central bank is now much more autonomous than it is broadly perceived."

The high interest rates will hurt. The European Bank for Reconstruction and Development says recession is certain, predicting 0.2 percent contraction for the full year of 2015.

Politicians have grumbled. Economy Minister Alexei Ulyukayev sent a letter to the Kremlin in the summer urging greater "cooperation" between the bank and the government, viewed as a plea for looser policy.

"There is a tension between the government and the central bank as regards growth. The effect of these stabilization policies is going to be to deepen the recession," said Christopher Granville, managing director of London-based consultancy Trusted Sources.

Putin himself has complained about high borrowing costs. But so far, he seems to trust the hawkish instincts at the bank.

"What the central bank is doing is in line with what the leadership wants, in a strategic way," said Granville. "Stability is the absolute top priority, rather than avoiding negative growth at all costs."

Still, there is always a chance that Putin can change his approach. Remarks he made on Tuesday hinted as much. Speaking to Finance Minister Anton Siluanov, he called for "teamwork between the central bank and the government".

OBSESSION

Exchange rates are an obsession for Russians since the 1990s, when hyperinflation after the fall of the Soviet Union wiped out the financial system, destroyed savings and brought the economy to its knees.

A second currency collapse and default in 1998 propelled Putin into power the following year, and a stable rouble has been one of the most prized achievements of his rule ever since.

Putin himself makes much of the central bank's independence.

"We - from the executive power level - do not meddle in the policy of the central bank," he said this month when meeting IMF head Christine Lagarde. "The central bank, in accordance with the law, conducts an independent policy. But of course we look carefully at what is happening."

In an emailed comment, the bank said its independence, "one of the fundamental principles in understanding of monetary policy", was enshrined in the constitution.

Some of Putin's critics say he keeps out of monetary policy because he feels insecure about an area outside his expertise.

"The central bank of Russia is the most independent institution in modern Russia," said Sergei Aleksashenko, a former deputy central bank governor and critic of the president.

"That originates from Mr Putin's inability to understand how monetary authorities operate. He understands the importance and influence of the central bank but is afraid to influence it in a strong manner."

GEEKS IN GLASSES

Unlike at some ministries and top companies, the bank's management does not include any of Putin's powerful old friends.

"It's just a bunch of glasses-wearing geeks; you can argue more or less competent, but geeks," said the high-ranked government source.

Putin has put his trust in the bank's governor Elvira Nabiullina, 51, at the bank's helm for 17 months after serving Putin for years as economic advisor and cabinet minister.

"She has turned out to be stronger than expected as the central bank governor," said Anders Aslund, senior fellow at the Peterson Institute for International Economics in Washington.

Nabiullina, in turn, has put monetary policy in the hands of Ksenia Yudayeva, a U.S. trained economist regarded as one of the brightest in the country.

The rouble stability of the Putin years has been underwritten by vast currency reserves earned from selling oil and gas. But when oil prices fell and sanctions were imposed over the Ukraine crisis this year, even Russia's $420 billion war chest showed its limits.

After spending $30 billion supporting the currency in a single month, Nabiullina brought forward long-awaited plans to float the rouble, abandoning efforts to keep the exchange rate within an official band.

On the morning of Nov. 10, when it was announced, even the heads of the bank's departments were taken by surprise, sources said, emphasizing Nabiullina's ability to prevent leaks.

Before she cut the rouble loose, Nabiullina sharply hiked interest rates to ensure that savers would hold rubles and prevent a panicked flight, like the one that hit in 1998.

The rouble is still some 29 percent down against the dollar, but has rallied in recent days. Earlier this week, Nabiullina stoically defended the decision to float the currency.

"It is absolutely impossible to control the exchange rate ... in the current economic conditions that the Russian economy is now in, by keeping its dependency on the price of oil," she told lawmakers in parliament.

(Addtional reporting by Alexei Anishchuk, Elena Fabrichnaya and Jason Bush, Writing by Lidia Kelly; Editing by Jason Bush, Timothy Heritage and Peter Graff)

By Lidia Kelly and Oksana Kobzeva

React to this article
Latest news
Date Title
12m ago Putin stands by hawkish Russian central bank - for now
17m ago CITIGROUP : Chile hires banks ahead of potential bond sale
17m ago ROSS STORES : Given New $95.00 Price Target at Deutsche Bank (ROST)
17m ago MYER : Receives "Hold" Rating from Deutsche Bank
17m ago BANK OF AMERICA : King Digital Entertainment PLC : Given New $16.00 Price Target at Deutsche Bank (KING)
18m ago GlobalCapital plc announces appointment of Group Financial Controller
20m ago HSBC : Jersey Finance bolsters business development team in Middle East
22m ago Rhode Island, New Jersey and Virginia High School Scientists Win Regional Siemens Competition at Georgia Institute of Technology for Research Solving an Open Math Problem and the Discovery of a Pharmaceutical Solution to Broad Spectrum Antibiotic Resistance
52m ago New York High School Scientists Win Regional Siemens Competition at Carnegie Mellon University for Research on Improving Reproductive Health Through Meiosis and Aortic-Derived Mesenchymal Stem Cells
55m ago RAS AL KHAIMAH PROPERTIES PJSC : RAK Properties awards Bermuda Villas to Al Tameer Group
Latest news
Advertisement
Hot News 
SNOOZEBOX : Providing Temporary Hotel For Premier Oil
FAIRFX : Taps John Pearson To Replace Co-Founder As Chairman (ALLISS)
MOL GLOBAL : ATTENTION MOL GLOBAL SHAREHOLDERS: Shareholder Rights Law Firm Johnson & Weaver, LLP Announces Investigation of MOL Global, Inc.
S&P 500 MOVERS : Gme, rost
FULLER SMITH & TURNER : Pub operator Fuller's first-half profit rises 8 pct
Most Read News
1d ago COMCAST : United States: Faulty Damages Model Leads To Partial Decertification
1d ago DUKE ENERGY : OUCC urges denial of Duke infrastructure plan
1d ago MERCHANTS BANCSHARES : Announces Appointment of Chief Executive Officer of Merchants Bank
1d ago HORNBY : Half Yearly Report
1d ago HERTZ GLOBAL : Appoints John P. Tague President And Chief Executive Officer
Most recommended articles
12m ago Putin stands by hawkish Russian central bank - for now
1d agoDJBig Homes Can Complicate Retirement
1d agoDJAfter a Good Start, Health Enrollment Faces Test
1d ago AVIVA : says will compensate customers sold wrong annuities
1d ago Albanian opposition rallies against tax, power burden
Dynamic quotes  
ON
| OFF