Russian Central Bank Governor Elvira Nabiullina remains at her post—there had been widespread rumors a few weeks ago that she might be on her way out—but neither have the protests over her high interest rate policies diminished. Indicative is a report on the Kremlin site about a meeting between President Vladimir Putin and VTB Bank CEO Andrei Kostin. Besides reporting that VTB Bank, one of the most important in Russia, “remains focused on financing major industrial projects,” Kostin weighed in: “So, despite the relatively high interest rates, these projects are continuing to move ahead and develop. Of course, if we succeed in countering inflation and lowering the key interest rate, that will further accelerate these projects and make their implementation easier.”
At last week’s Financial Congress, held by the Central Bank in St. Petersburg, another top banker confronted Nabiullina directly. German Gref is CEO of Sber, the savings bank majority-owned by the state (formerly called Sberbank), which is the biggest bank and lender in Russia; in 2000-2003, when Gref was Minister of Economic Development and Trade, Nabiullina was his deputy. Now, Gref said that inflation, which the Bank of Russia seeks to manage through the high key rate, and the “overcooling” caused by that high rate have gone out of balance as risks: the risk of stagnation is greater than the risk of inflation. If investment has fallen four quarters in a row, he said, that is overcooling, and it will be more difficult to resuscitate the economy from stagnation, than to act now to prevent overcooling. Reporting that Sber is currently doing more loan restructuring than issuance of new credit, Gref said that any real interest rate greater than 10% not only erodes companies’ ability to borrow, but it eats into their liquid funds and therefore curbs investment. (On June 19 the Bank of Russia lowered the key rate by only 25 basis points, to 14.25%.)
