Page 60 - bne magazine September 2023

60 Opinion bne September 2023
CBR Governor Elvia Nabiullina is famous for being the "most conservative central banker in the world" but did she really drop the ball and drag her heels on hikes that caused the ruble to crash? More likely, she just had an unorthodox adventure that went badly wrong. / bne IntelliNews
MOSCOW BLOG
Nabiullina’s unorthodox adventure Ben Aris in Berlin
The Central Bank of Russia (CBR) came in with a much bigger rate hike than I, or most commentators,
were expecting. After the ruble slid below RUB100
to the dollar – one ruble is worth one cent now – the CBR announced it would hold an emergency meeting and put in a big rate hike.
Most people were expecting a 150bp hike, as that should have been enough to stem the bleeding, but CBR Governor Elvira Nabiullina, as ever, acted decisively and killed the problem dead, in the same way that she did in March 2022 when the ruble last tanked, putting in a 1,000bp rate hike that turned the FX dynamics on a dime and saw the ruble strengthen to an extraordinary RUB53 in a week.
As you are probably aware, I have taken the line that she was weakening the ruble on purpose, as that generates extra rules
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for the budget to close the hole – and that worked; the deficit has come down from 2.4% of GDP to 1.8% and inside the 2% target. But this comes at a cost: higher inflation. According to the weekly figures, annualised core inflation is now 7.1%, way up on the historically low 2.4% in May, and still rising.
Others have cheered the collapse of the ruble as evidence that sanctions are working, as both oil revenues and the current account surplus have shrunk, putting pressure on the ruble.
Digging into it over the last 24 hours and the truth is, predictably enough, more complicated. Presidential economic advisor Maxim Oreshkin wrote an op-ed for Tass that came out yesterday just as the ruble hit RUB100 to the dollar, slating the CBR for “soft monetary policy” – ie not raising rates fast enough. Nabiullina defended herself, saying the problem was the “large public sector demand”