Here’s the key evidence. In comments made just nine days ago, the country’s central bank chief indicated she saw no chance of a rate cut any time soon after inflation soared to a five-year high. A week earlier, though, one of Putin’s most vocal economic aides urged the exact opposite, saying a reduction was needed to bolster the ailing economy.
So when the Bank of Russia shocked traders and analysts alike by announcing it was lowering the benchmark rate from an 11-year high, the words spoken by that aide, Andrey Belousov, left many to speculate that the Kremlin is exerting more pressure on central bank policy makers. The rate cut -- to 15 percent from 17 percent -- triggered a wave of ruble selling that drove the currency down as much as 4 percent, adding to a year-long selloff that’s left it down 50 percent percent against the dollar.
Kremlin Denial
Putin’s spokeman, Dmitry Peskov, denied that government officials sought to influence the central bank’s decision. “No, it’s not true,” Peskov said in a telephone interview hours after the meeting. Still, Finance Minister Anton Siluanov had nothing but praise for the rate move, telling reporters that the the currency market was under control.Only one of the 32 analysts surveyed by Bloomberg had anticipated a rate cut. All the rest expected no change in rates following six increases last year, including a 6.5-point move in December that sought to defend the ruble and curb inflation in an economy sputtering under the weight of international sanctions and plunging prices for its oil exports.
“The central bank is under increasing pressure and the further the economy falls into recession, the greater the pressure to lower the cost of lending,” said Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow. “But in the end, this will create greater financial risks, risks to macro-stability. I don’t think it’s the best option.”
Tulin’s Arrival
Central bank Governor Elvira Nabiullina issued a statement after the meeting supporting the rate cut, saying policy makers were balancing the goals of curbing inflation and reviving economic growth. It marks a stark reversal for a policy maker who had said on Jan. 21 that rates could only be cut when there was a “sustainable trend toward a slowing of inflation.”The central bank’s press office didn’t immediately respond to an e-mailed request for comment late Friday night about whether the board is coming under political pressure.
Belousov, the Putin aide, had made his comments about the need for lower rates earlier this month hours after Dmitry Tulin took over as Bank of Russia’s deputy governor for monetary policy. Tulin was appointed in a leadership shakeup that followed Putin’s criticism of policy makers’ handling of the currency crisis. Business leaders and the country’s top bankers followed Belousov’s lead, arguing that the economy, and the country’s struggling lenders, needed a helping hand.
The economy may shrink 3.2 percent in the first half of this year after growing just 0.6 percent in 2014, the central bank said in its statement accompanying the rate reduction. Inflation soared to 13.1 percent as of Jan. 26, according to the central bank. That’s the fastest pace since April 2009.
Policy makers are “increasingly caught between a rock and a hard place as it seems the priority is shifting toward relieving the economy,” said Vladas Zaborovskis, fund manager at SEB’s Eastern European Bond Fund. “The rate cut puts a dent in the central bank’s hard-gained credibility.”
To contact the reporters on this story: Anna Andrianova in Moscow at aandrianova@bloomberg.net; Ott Ummelas in Tallinn at oummelas@bloomberg.net; Milda Seputyte in Vilnius at mseputyte@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net Paul Abelsky, Scott Rose
