Interview with Russian Central Bank Governor Elvira Nabiullina – IMF Finance & Development Magazine | March 2019
Source details
- Canonical URL
- Interview with Russian Central Bank Governor Elvira Nabiullina – IMF Finance & Development Magazine | March 2019
Other formats
Bibliographic details
- Published: March 1, 2019
Overview and context
- Elvira Nabiullina became governor of the Central Bank of Russia in 2013 amid plunging oil prices, geopolitical tensions, and sanctions.
- By December 2014 the exchange rate and the banking system were under severe pressure and the economy was heading into recession.
- Policy actions taken: float the exchange rate, announce immediate move to inflation targeting, and step up banking reform.
- Recognition mentioned: named 2015’s Central Bank Governor of the Year by Euromoney magazine and 2016’s Best Central Bank Governor in Europe by The Banker; delivered the Michel Camdessus Central Banking Lecture at the IMF in September 2018.
Rationale for adopting inflation targeting
- Intended effects:
- Reduce inflation and maintain it consistently at a fairly low level.
- Manage inflation expectations through policy actions.
- Preconditions and preparatory steps taken before the formal switch:
- Developed tools to refinance banks to enable interest rate policy transmission.
- Gradual move to a more flexible exchange rate (from fairly strictly managed to floating).
- Developed capacity in models, projections, and analysis.
- Assessment after four years: framework suits emerging market economies like Russia; many countries have adopted inflation targeting and no examples known of official reversions.
Floating the exchange rate
- Timing and rationale:
- Exchange rate floated at the peak of the crisis in late 2014; decision seen as necessary rather than postponable.
- Nabiullina argued that intervening would have depleted reserves and delayed inevitable float.
- Benefits observed:
- Floating exchange rate absorbed external shocks and facilitated rapid balance of payments adjustment.
- Example: early 2016 fall in oil prices had unremarkable effects on financial markets due to the floating exchange rate.
- Implementation notes:
- Exchange rate was floated gradually; a widened corridor preceded full float.
- Importance stressed of actually floating during stress to change expectations; intervening would have encouraged expectations of further devaluation.
Communications and building public support
- Communications were crucial during the transition to inflation targeting and the floating exchange rate.
- Measures taken to expand communications toolkit:
- Announced dates of Board meetings a year in advance (not done before).
- Began holding press conferences and providing more analytical materials, reports, interviews, and surveys.
- Arranged meetings with investors and analysts; engaged with regions (business, analysts, regional leadership).
- Communication objectives:
- Ensure markets, broader business audience, and public understand and trust policy.
- Manage expectations: achieving announced targets was fundamental to credibility.
- Shift focus from specialized analysts to broader public to build confidence in ruble assets and planning horizons.
Withstanding pressure and monetary policy stance
- Strategy to resist pressure for faster rate cuts: consistent policy implementation demonstrating that high interest rates curb inflation and allow rates to fall as inflation declines.
- Observed outcomes supporting policy:
- Mortgage lending expansion began in 2016-2017 as inflation outlook improved.
- Present economic growth rate described as close to potential growth rate of 1½ to 2 percent.
- Historically low unemployment cited as further evidence.
- Reaction to VAT-driven inflation spike:
- Temporary increase in inflation mostly because the VAT rate was increased.
- Central bank raised the key rate to prevent inflation from upward spiraling.
- Expectation stated: inflation to reach as much as 5.5-6% by the end of Q1, and then start decreasing.
Assessment of inflation targeting results and hindsight
- Inflation targeting and floating exchange rate judged to be working: reduced inflation and increased economy’s resistance to external shocks.
- Achievements:
- Greater confidence in ruble assets and de-dollarization of deposits (regulatory measures also contributed).
- Hindsight:
- Some fine-tuning possible, but strategic decision seen as correct.
- Critics argued interventions should have limited exchange rate overshooting; Nabiullina argued the overshoot stage was necessary to change expectations.
- Earlier adoption a few years before 2014 “possibly” would have been better; a month or two earlier would have changed little.
Banking sector reform
- Problems identified in the banking sector:
- Insufficient genuine capital due to rapid emergence in the early 1990s and limited capital inflows thereafter.
- Deterioration in asset quality following the 2008 and 2014-2015 crises.
- Unscrupulous practices: owners using banks to finance their own businesses, poor risk management, money laundering.
- Actions taken:
- Revoked about 400 licenses from unstable and fraudulent banks.
- Restructured three large banks, resulting in an increase in the share of state ownership in the banking sector.
- Aim to build regulation and supervision that treats banks equally regardless of state share; intend to return temporarily state-held bank shares to the market when possible.
- Rationale: ensure a stable, strong financial system that can support economic growth and avoid repeated large infusions.
Mega-regulator reform (central bank oversight of nonbank sector)
- In 2013 the central bank assumed responsibility for nonbank financial institutions and securities commission functions, creating a “mega-regulator.”
- Benefits observed:
- Ability to take a consolidated view of financial groups that include banks, insurance companies, private pension funds—helpful when restructuring large groups.
- Reduces regulatory arbitrage and facilitates uniform approaches and standards.
- Better oversight of shadow banking as risks migrate across sectors.
- Drawbacks and institutional challenges:
- Potential public demand for the central bank to solve banks’ problems by issuing money—creates pressure between monetary policy and supervisory functions.
- Need to build internal “walls” between banking supervision and monetary policy.
Leadership, governance, and principles
- Key leadership qualities emphasized:
- Surround yourself with strong professionals; stimulate debate and make decisive choices without deviation.
- Staff must understand they work for the public good and long-range goals; deliver on promises to society.
- Consistency during turbulent times is critical; late decisions carry high societal costs.
- On independence:
- Nabiullina noted that pressure and criticism remain; success derives from consistent policy implementation and preparatory work preceding her tenure.
Interview with Elvira Nabiullina, IMF Finance & Development Magazine, March 2019
Content in this bundle
- في خندق العمل
- En pos de la estabilidad ● Finanzas y Desarrollo ● Marzo de 2019
- En première ligne : À la recherche de la stabilité
- Interview with Russian Central Bank Governor Elvira Nabiullina
- На передовой. Стремясь к стабильности – Финансы и развитие – март 2019 года
- 实施稳健的政策 - 前 沿 - 金融与发展