Bloomberg: Putin started pressuring Russian Central Bank chief Nabiullina over key rate

Vladimir Putin, who had long kept a conspicuous distance from Russia’s monetary policy, made clear twice in July that the Central Bank needed to lower its key rate. The Bloomberg news agency reported that Putin made “unusually direct” comments shortly before the bank’s policy meeting.

Russia’s Central Bank cut the key rate by 25 basis points to 14% on July 24, insisting the move was made independently. However, the bank also lowered the rate without releasing a forecast, leaving investors uncertain about its next steps.

“The president used to refrain from commenting on the Central Bank, but now he has started doing so. At the same time, large businesses have spent months publicly complaining about high rates. Together, those factors have increased the pressure on the Central Bank,” said economist Oleg Vyugin, a former first deputy governor of Russia’s Central Bank.

Putin also shifted his tone in meetings with Elvira Nabiullina, the governor of Russia’s Central Bank, according to Bloomberg’s sources. He remained friendly but made clear that she should take note of the signals.

“Political pressure on the Central Bank has clearly intensified, but there has been no formal retreat from its independence so far. The Bank of Russia is bending a little, but it is not breaking,” said Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis.

Vyugin said the main question now is what the Central Bank will do next. “The decisive test will come at the September meeting, when the Central Bank will review new inflation data. And those figures are unlikely to be encouraging,” he added.

Bloomberg wrote that the episode over the key rate shows how four years of war in Ukraine have changed Russia’s state institutions. “A Central Bank once prized for its technocratic independence is increasingly operating in a system where political priorities are becoming harder to separate from monetary policy,” the article states. The strain is playing out as Russia’s wartime economy grapples with slowing growth and enormous government spending.

Elvira Nabiullina has led Russia’s Central Bank since 2013, championing tight monetary policy for more than a decade. Under her leadership, the regulator has repeatedly raised interest rates during periods of crisis.

Nabiullina is now serving her third term in the post, which by law is supposed to be her last. The independent Russian outlet The Bell reported that three candidates are being considered to succeed her: Maxim Oreshkin, deputy head of Russia’s Presidential Administration; Pyotr Fradkov, head of Promsvyazbank; and Andrey Kostin, head of VTB. Journalists have not ruled out that lawmakers could change the law to allow Nabiullina a fourth term.