## Interview with Russian Central Bank Governor Elvira Nabiullina

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**Canonical URL:** [Interview with Russian Central Bank Governor Elvira Nabiullina](https://www.imf.org/-/media/files/publications/fandd/article/2019/march/interview-with-russian-central-bank-governor-elvira-nabiullina.pdf)

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### Overview
- Elvira Nabiullina became governor of the Central Bank of Russia in 2013 and faced a growing economic crisis driven by plunging oil prices and geopolitical tensions with Ukraine.
- By December 2014, the exchange rate and the banking system were under severe pressure, and the economy was heading into recession.
- The central bank floated the currency, announced an immediate move to inflation targeting, and stepped up the pace of banking reform.
- Recognitions mentioned: named 2015 Central Bank Governor of the Year by Euromoney magazine and 2016’s Best Central Bank Governor in Europe by The Banker; appeared on Forbes’ list of the world’s most powerful women.

### Rationale for adopting inflation targeting
- Key reasons for choosing inflation targeting:
  - It "makes it possible to reduce inflation and maintain it consistently at a fairly low level."
  - Requires management of inflation expectations, which is challenging in an emerging market where the public has experienced high inflation and doubts low inflation can persist.
- Transitional preparations already in place prior to full adoption:
  - Development of tools to refinance banks enabling use of interest rate policy to manage inflation via the transmission mechanism.
  - Gradual move to a more flexible exchange rate, from a fairly strictly managed rate to a floating rate.
  - Development of capacity in models, projections, and analysis.
- Nabiullina: "I think that these three elements were crucial to ensuring that we were able to achieve the effects that we had promised the public."

### Decision to float the exchange rate
- Timing and rationale:
  - The exchange rate was floated at the peak of the crisis in late 2014 amid elevated risks to financial stability.
  - Nabiullina argued delaying the float would have depleted part of gold and forex reserves and that floating was ultimately inevitable.
- Outcomes:
  - The floating exchange rate "has worked well to absorb external shocks and has facilitated a rapid adjustment of the balance of payments."
  - Cited episode: in early 2016, when oil prices fell, the floating exchange rate helped ensure effects on financial markets were "unremarkable."

### Communications and building public support
- Communications role:
  - Critical during the transition to inflation targeting to explain changes and demonstrate benefits.
  - Inflation targeting demands a higher level of communications because it is based on managing expectations and forecasts.
- Actions taken to expand communications:
  - Announced dates of board meetings a year in advance.
  - Began holding press conferences and providing more analytical materials, reports, interviews, and surveys.
  - Arranged meetings with investors and analysts.
- Audience focus:
  - Initial focus on analysts and market professionals to anchor inflationary expectations of market participants.
  - Current priority to communicate with a broader business audience and the public to build trust and give people greater confidence for life and business planning.
- Observed result: "inflationary expectations of market participants are now better anchored."

### Banking sector reform: problems and policy approach
- Identified systemic problems:
  - Insufficient genuine capital in the banking system originating from rapid emergence in the early 1990s and limited subsequent capital inflows.
  - Deterioration in asset quality after the crises of 2008 and 2014–15, with nonperforming assets remaining on balance sheets.
  - Use of banks for unscrupulous practices, including owners using banks to finance their own business with poor risk management and money laundering.
- Policy objectives and actions:
  - Restructure the banking system to support stable economic growth and avoid repeated large financial infusions.
  - Improve the health of the banking system to prevent future needs for large state support.
  - Recognize market preference for reduced state ownership and intend to return banks in which the state temporarily holds a share to the market "as soon as there is an opportunity."

### Leadership and governance insights
- Key leadership qualities Nabiullina emphasizes:
  - Surround yourself with strong professionals and not fear strong people.
  - Stimulate debate so staff are not afraid to express opinions, then decide and do not deviate from decisions.
  - Central bank staff should understand they work "for the public good, for long-range goals" and must deliver on promises to society.
  - Accept that compromises are inevitable in policy but recognize there are limits to compromise.
- Quotation: "It is important for people who work at a central bank to understand that they are working for the public good."

### Key outcomes and observations
- Policy package (float + inflation targeting + banking reform) produced "significant positive results."
- Floating exchange rate aided rapid balance of payments adjustment and absorbed external shocks (example: early 2016 oil price fall).
- Banking reforms aimed to reduce vulnerability to crises and prepare for eventual reduction in state ownership when conditions permit.

*Source: Interview with Russian Central Bank Governor Elvira Nabiullina*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2019/march/interview-with-russian-central-bank-governor-elvira-nabiullina.pdf_