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Rouble's fall tests Russian central bank's independence

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Vladimir Putin

Vladimir Putin

REUTERS

Vladimir Putin

With Russia's economy battered by economic sanctions and plunging oil prices, President Vladimir Putin has allowed the central bank to administer strong medicine, sharply raising interest rates even as it freed the rouble to float.

Such tough measures may well help push the country deeper into recession next year, but have so far staved off financial panic, runaway inflation or a currency meltdown like the one that helped catapult Mr Putin into power in the 1990s.

Those who follow the central bank say the hawkish moves are a result of Mr Putin, known for closely managing Russia's machinery of power, giving the bank's technocrats free rein.

"There is ongoing criticism of the central bank and of the whole government being Putin's lap dog," said a high-ranked government source. "But all things considered, the central bank is now much more autonomous than it is broadly perceived."

Mr Putin himself has complained about high borrowing costs. But so far, he seems to trust the hawkish instincts at the bank.

Exchange rates are an obsession for Russians since the 1990s, when hyperinflation after the fall of the Soviet Union wiped out the financial system, destroyed savings and brought the economy to its knees.

Mr Putin himself makes much of the central bank's independence. Some of Mr Putin's critics say he keeps out of monetary policy because he feels insecure about an area outside his expertise.

Unlike at some ministries and top companies, the bank's management does not include any of Mr Putin's powerful old friends. Mr Putin has put his trust in the bank's governor Ms Elvira Nabiullina (51) at the bank's helm for 17 months after serving Mr Putin for years as economic advisor and cabinet minister.

Ms Nabiullina, in turn, has put monetary policy in the hands of Ksenia Yudaeva, a highly-regarded US trained economist.

The rouble stability of the Mr Putin years has been underwritten by vast currency reserves earned from selling oil and gas.

But when oil prices fell and sanctions were imposed over the Ukraine crisis this year, even Russia's $420bn war chest showed its limits. After spending $30bn supporting the currency in a single month, Ms Nabiullina brought forward long-awaited plans to float the rouble, abandoning efforts to keep the exchange rate within an official band.

The rouble is 29pc down against the dollar, but has rallied in recent days. "It is absolutely impossible to control the exchange rate," she told lawmakers in parliament.

Irish Independent