Pursuing stability

• Author: Elvira Nabiullina
• Pages: 34-35

34 FINANCE & DEVELOPMENT | March 201934 FINANCE & DEVELOPMENT | March 2019

IN THE TRENCHES

COURTESY O F THE CENT RAL BAN K OF RUSSIA

Pursuing Stability

Elvira Nabiullina explains how bold policy

action helped Russia avert a deeper

recession and reform the banking sector

WITHIN A FEW SHORT MONTHS after taking up her

post as governor of the Central Bank of Russia

in 2013, Elvira Nabiullina faced a growing eco-

nomic crisis brought on by plunging oil prices and

geopolitical tensions with Uk raine. By December

2014, the exchange rate and the banking s ystem

were under severe pressure, and the economy was

heading into recession. A decisive response wa s

needed, and the central bank chose to float the

currency, announce an immediate move to infla-

tion targeting, a nd step up the pace of banking

reform. ese bold policies have yielded signific ant

positive results.

e first female governor of the Central Ba nk of

Russia, Nabiullina wa s named 2015 Central Bank

Governor of the Year by Euromoney magazine a nd

2016’s Best Central B ank Governor in Europe by

e Banker. She has also appea red on Forbes’ list

of the world’s most powerful women.

In this interview w ith Olga Stankova of the IMF’s

Communications Depart ment, Nabiullina, who

previously served as mi nister of economic devel-

opment, discusses her experience leading Russia’s

central bank during this chal lenging period.

F&D: Inflation ta rgeting—when a centr al bank

announces a t arget for infl ation and mana g-

es inflation ex pectations t hrough its polic y

actions—is considered fai rly complex and

demanding for emer ging market e conomies.

What was t he rationale for adopting t his policy

in Russia?

EN:

Looking at the exper ience of other countries we

saw that inflation tar geting is a policy that makes it

possible to reduce inflation and mainta in it consis-

tently at a fairly low level. Of course, th is policy can

be challenging for emergi ng markets, because their

financial ma rkets are relatively shallow and—wh at

is probably more important—inflation targeting

requires the manag ement of inflation expectations.

is is challeng ing in an emerging ma rket where

the public has lived through per iods of high infla-

tion, has grown accustomed to hig h inflation and

does not believe that low inflation ca n be achieved

over the longer term.

We in any event did not make an abrupt switch

to inflation targeti ng. We had already begun to

prepare for it after the 2008 –09 crisis. First, we

developed the tools needed to refinance ba nks,

and those tools made it possible to use interest rate

policy—throug h the transmission mechanism—to

manage infl ation. Second, we gradually moved to

a more flexible exchange rate, from a fairly st rictly

managed rate to a floating r ate. ird—and ver y

importantly—in flation targeting depends greatly

on the quality of models, projections, and a nalysis,

so we also developed that capacit y. I think that

these three elements were crucia l to ensuring that

we were able to achieve the effects th at we had

promised the public.

F&D: e exchange rate w as floated at the peak of

the crisis in late 2 014. Were there any other good

choices in that situ ation? And wa s managi ng

the exchang e rate for a while longer an option?

EN:

Indeed, we had to move to a floating exchange

rate during a period of elevated risk s to financial