Putin Names Ally as Head of Russian Central Bank

MOSCOW — President Vladimir V. Putin on Tuesday nominated Elvira Nabiullina, a close political ally and his chief economic adviser, to become the new chairwoman of Russia’s central bank.

The nomination strongly signaled that the bank’s independence, like that of so many other institutions in Russia, may now be eclipsed by more direct Kremlin control over rate-setting policy. The step came despite a general consensus in economic circles that countries with independent central bankers tend to do better economically over the long term.

Ivan Tchakarov, the chief economist for Russia and the Commonwealth of Independent States at Renaissance, a Moscow investment bank, said investors were likely to react negatively to the appointment, which was announced after the market closed Tuesday in Moscow.

With much of the rest of the scaffolding of government, including Parliament and the judiciary, now under de facto control by the Kremlin, the succession struggle this winter with the looming resignation of Russia’s long-serving central banker, Sergei M. Ignatiev, became a fight for the continued independence of the bank.

“The central bank isn’t simply a commercial bank — it is above all the regulator of our financial system and the most powerful institution responsible for state economic policy,” Mr. Putin said in making the announcement, in comments carried by news agencies.

Supporters of a more independent institution had hoped a deputy bank chairman, Aleksei V. Ulyukayev, might take over as a candidate representing continuity and independence. But members of Mr. Putin’s economic team, including Ms. Nabiullina, have been openly pushing for lower rates that might stimulate faster growth.

Prime Minister Viktor Orban of Hungary recently made a similar move in naming his economics minister and political ally, Gyorgy Matolcsy, to head that country’s central bank.

Mr. Putin, speaking Tuesday at his country residence, Novo-Ogaryovo, suggested that there had been some compromise with supporters of the current bank leadership, a group seen as inflation hawks, by announcing that Mr. Ignatiev would remain as an adviser to Ms. Nabiullina.

In February, Prime Minister Dmitri A. Medvedev of Russia released an economic policy statement calling for an optimistic 5 percent annual growth in gross domestic product, up from 3.5 percent last year. At the same meeting, Mr. Putin obliquely criticized the central bank, formally known as the Bank of Russia, saying rates were not conducive to growth.

Mr. Tchakarov, the analyst, said the appointment could be a signal of higher inflation and a weaker ruble.

Ms. Nabiullina “is often seen as a close political ally of Putin,” Mr. Tchakarov said. “This will certainly be perceived by markets as a signal that the central bank of Russia in the future will be much more subject to pressure. This is a blow to the independence of the central bank.”

While a policy of lower rates might work to jump-start economic growth in large, stable economies like the United States or the European Union, the calculus is different in Russia, where lower interest rates cause currency traders to dump the ruble.

Just this cycle plagued Russia’s neighbor, Belarus, two years ago during a balance of payments crisis when the Belarusian currency, also called the ruble, collapsed.

Still, Belarus’ central bank on Tuesday cut its main interest rate to below the 30 percent that is generally considered necessary for banks and individuals to agree to hold their savings in the wobbly national currency.

This cut, to 28.5 percent, was against the advice of the International Monetary Fund. But the country’s authoritarian president, Aleksandr Lukashenko, had flatly threatened to fire the central bank leadership if they did not lower rates.

Article source: http://www.nytimes.com/2013/03/13/business/global/putin-names-ally-as-head-of-russian-central-bank.html?partner=rss&emc=rss