For the second time in less than a decade, Elvira Nabiullina is sending the Russian economy through treacherous waters.

In 2014, faced with a collapsing ruble and rising inflation after barely a year as head of the Central Bank of Russia, Ms. Nabiullina forced the institution into the modern era of economic policy-making by raising interest rates sharply. The politically risky move slowed the economy, tamed rising prices and earned her an international reputation as a tough decision maker.

In the world of central bankers, under technocrats who had to control prices and keep financial systems stable, Ms. Nabiullina became a rising star by using orthodox policies to manage an unmanageable economy that was often at oil prices. be bound to. In 2015, she was named Central Bank Governor of the Year by Euromoney magazine. Three years later, Christine Lagarde, then head of the International Monetary Fund, proclaimed that Ms. Nabiullina could “make central banking sing.”

Now it’s up to Ms. Nabiullina to steer the Russian economy through a deep recession and keep its financial system, cut off from much of the rest of the world, intact. The challenge follows years she spent bolstering Russia’s financial defenses against the kind of strong sanctions applied in response to President Vladimir V. Putin’s geopolitical aggression.

She has led the extraordinary rebound of the Russian currency, which lost a quarter of its value within days of the invasion of Ukraine on February 24. The central bank took aggressive measures to prevent large sums of money from leaving the country, halting panic in the markets and a possible run on the banking system.

At the end of April, the Russian parliament confirmed Ms Nabiullina, 58, as chairman for another five years after Mr Putin nominated her for a third term.

“She is an important beacon of stability for Russia’s financial system”said Elina Ribakova, the deputy chief economist at the Institute of International Finance, an industry group in Washington. “Her reappointment has symbolic value.”

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Prescribing a difficult drug

In her latest crisis, she turned disaster into an opportunity. In 2014, Russia was rocked by double economic shocks: a collapse in oil prices – caused by a surge in US production and Saudi Arabia’s refusal to cut production, hurting Russia’s oil revenues – and economic sanctions. imposed after Russia annexed Crimea.

The ruble plummeted. Ms. Nabiullina abandoned traditional policies – such as issuing large amounts of foreign exchange reserves to support the exchange rate – and focused on controlling inflation. She raised the interest rate to 17 percent, which remained relatively high for years.

It was a painful adjustment and the economy shrank for a year and a half. But by mid-2017, she’d accomplished something that seemed far-fetched a few years earlier: inflation fell below 4 percent, the lowest in the country’s post-Soviet era.

“She has been the example of a modern central banker,said Richard Portes, an economics professor at London Business School, who has shared panel stages with Ms Nabiullina at conferences.

“She did what she had to do,” he said, even when it was politically difficult. “If you want a demonstration of the alternative,” Portes added, “you just have to look at Turkey,” where years of political meddling in the central bank have seen inflation spiral out of control, reaching 70 percent this month. .

Under the leadership of Ms. Nabiullina, the central bank continued its modernization efforts. It improved its communications by planning key policy decisions, providing policy advice, meeting with analysts and submitting interviews with reporters. The Central Bank of Russia was considered the country’s main economic brain, attracting respected private sector economists.

At its annual conference in St. Petersburg, the central bank attracted economists from around the world, and Ms. Nabiullina attended international meetings, including the Federal Reserve’s annual symposium in Jackson Hole, Wyoming and regular central banker meetings held by the Bank for International Settlements in Basel, Switzerland.

She has been described as personable, focused, always well prepared, a proponent of market forces (despite her Soviet-era economics training), and a fan of history and opera. She was born in Ufa, a city more than 700 miles east of Moscow known for heavy industry. She studied at Moscow State University, one of the most prestigious schools in the country, and is married to a fellow economist.

Credit…Kim Kyung-Hoon/Reuters

Cleaning up banks

In addition to her track record on monetary policy, Ms. Nabiullina has been commended for pursuing a deep clean-up of the banking sector. In her first five years at the bank, she revoked about 400 banking licenses — essentially shutting down a third of Russia’s banks — in an effort to weed out weak institutions carrying out so-called “dubious transactions.”

It was considered a brave crusade: in 2006, a central bank official was murdered who had launched a vigorous campaign to shut down banks suspected of money laundering.

“Fighting corruption in the banking sector is a task for very brave people,” said Sergei Guriev, a Russian economist who left the country in 2013 and is now a professor at Sciences Po in Paris. However, he called its program flawed, as it was largely limited to private banks. This created a moral hazard problem that made state-owned banks feel comfortable taking a lot of risks with government protection, he said.

Ms Nabiullina’s integrity has never been questioned, added Mr Guriev, who said he had known her for 15 years. “She has never been suspected of corruption.”

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Build a fortress

Ms. Nabiullina has been a senior official in Mr Putin’s regime for two decades. She was his chief economic adviser for a little over a year before becoming chairman of the central bank in June 2013, having served as economic development minister while Putin was prime minister.

“She has a lot of confidence in the government and in the president,” said Sofya Donets, an economist at Renaissance Capital in Moscow and at the central bank from 2007 to 2019. in the financial field were delegated to the central bank, she added.

This confidence was built while Ms. Nabiullina supported the Russian economy against Western sanctions, especially because of the long scope of US sanctions. In 2014, the United States cut off many large Russian companies from their capital markets. But these companies had large foreign currency debt, which raised alarms about how they would repay their debt.

Ms. Nabiullina began to squeeze as much US dollars out of the economy as possible so that businesses and banks would be less vulnerable if Washington further restricts access to US dollars in the country.

She also shifted the bank’s reserves, which have grown to more than $600 billion, to gold, the euro and the Chinese renminbi. During her tenure, the dollar’s share of reserves fell to about 11 percent, from more than 40 percent, Ms Nabiullina told parliament last month. Even after sanctions froze the bank’s overseas reserves, the country has “sufficient” reserves in gold and renminbi, she told lawmakers.

Other forms of protection against sanctions include an alternative to SWIFT, the global banking messaging system developed in recent years. And the bank changed the payment infrastructure to process credit card transactions in the country so that even the departures of Visa and Mastercard would have minimal effect.

In March, citing unidentified sources, Bloomberg News and The Wall Street Journal reported that Ms. Nabiullina had tried to resign after the invasion of Ukraine, and had been rejected by Mr Putin. The central bank rejected those reports.

Last month, the Canadian government placed her under sanctions for being a “close associate of the Russian regime”.

Mr Guriev, who has not been in touch with Ms Nabiullina recently, said he thought she could continue to fill her role because she could convince herself that if she resigned, inflation would spiral out of control and hurt ordinary Russians more. would get. serious.

“However, I think she supports Putin’s war economy,” he added. “She’s actually doing something she didn’t sign up for.”

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A war economy

After Mrs. Nabiullina spent nearly a decade building a reputation for curbing inflation and introducing traditional monetary policies to Russia, the Western financial sanctions imposed after the invasion of Ukraine quickly forced her to abandon her favored policies. . She more than doubled the interest to 20 percent; used capital controls to severely restrict the flow of funds out of the country; stop stock trading on the Moscow Stock Exchange; and relaxed banking regulations so that lending did not stall.

These measures halted the initial panic and helped the ruble recover, but capital controls have only been partially lifted.

Now, with a closed economy, Russia is entering a steep recession. On April 29, the bank cut interest rates to 14 percent, a sign that it was shifting from quelling a financial tornado to trying to minimize the long-term impact of sanctions on households and businesses as inflation accelerates and businesses are forced reinvent their supply chains. without imported goods.

Inflation has risen sharply and could reach an annual rate of 23 percent this year, the central bank predicted. The overall economy, it said, could shrink as much as 10 percent.

“We are in a zone of enormous uncertainty,” said Ms Nabiullina.

Liz alderman contributed reporting.

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