## Interview with Russian Central Bank Governor Elvira Nabiullina – IMF Finance & Development Magazine | March 2019

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**Canonical URL:** [Interview with Russian Central Bank Governor Elvira Nabiullina – IMF Finance & Development Magazine | March 2019](https://www.imf.org/en/publications/fandd/issues/2019/03/interview-with-russian-central-bank-governor-elvira-nabiullina)

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## Bibliographic details
- Published: March 1, 2019

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### 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*

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_Source: https://www.imf.org/en/publications/fandd/issues/2019/03/interview-with-russian-central-bank-governor-elvira-nabiullina_