The nomination of Elvira Nabiullina signals strongly that the bank will lower rates in the months ahead, something Mr. Putin has been pressing for against the advice of the bank’s current leadership.

Worryingly for investors, Mr. Putin nominated a confidante despite a consensus among global economic policy planners that countries with independent central bankers tend to do better economically over the long term. Yet Mr. Putin already controls other ostensibly independent institutions in Russia, like Parliament.

Mr. Putin’s government has also advocated for more seats on the bank’s board and plans to combine the functions of the stock market regulator, the equivalent of the Securities and Exchange Commission, with the central bank, further centralizing financial regulatory control.

“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 central bank chairman, Aleksei Ulyukayev, might take over as a candidate representing continuity and independence.

Mr. Ulyukayev in January had taken the unusual step for a Russian state official of defying obvious demands from the Kremlin. It wanted lower interest rates; Mr. Ulyukayev argued that such a move risked further stoking inflation, now at 7.3 percent.

But members of Mr. Putin’s economic team, including Ms. Nabiullina, have been openly pushing for lower rates that might stimulate faster growth closer to the 8 percent or so common during Mr. Putin’s first two terms.

Still, speaking at his country residence, Novo-Ogaryovo, Mr. Putin suggested on Tuesday some compromise with supporters of the current bank leadership by announcing that Sergey M. Ignatiev, the current central bank chairman, would remain as an adviser to Ms. Nabiullina.

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

“She is often seen as a close political ally of Putin,” Mr. Tchakarov said of Ms. Nabiullina. “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.”

Mr. Tchakarov said the appointment was a signal of higher inflation and a weaker ruble to come.

That is what the government has wanted. In February, Dmitry A. Medvedev, Russia’s prime minister, released an economic policy statement calling for 5 percent annual growth, up from 3.5 percent last year. At the same meeting, Mr. Putin obliquely blamed the central bank, formally known as the Bank of Russia, saying current bank rates were not conducive to growth. That seemed to seal Mr. Ulyukayev’s fate.

While a policy of lower rates might work to boost economic growth in large, stable economies like the United States or European countries with so-called safe haven currencies, the calculus is different in Russia, where lower interest rates risk turning away currency traders, who will dump the high-risk ruble if returns drop.

This occurred in Belarus, Russia’s neighbor, during a balance of payments crisis two years ago when the Belarussian currency, also called the ruble, collapsed.

Still, Belarus’s central bank on Tuesday cut its main interest rate below 30 percent, against the advice of the International Monetary Fund. That cut, to 28.5 percent, was seen as a sign of a loss of central bank independence. In Belarus, the country’s authoritarian president, Aleksandr Lukashenko, had flatly threatened to fire the central bank leadership if they did not lower rates.

Hungary’s prime minister, Viktor Orban, recently made a similar move, naming his economics minister and ally, Gyorgy Matolcsy, to head the central bank.

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