Putin's Loyalty to Nabiullina Is Costing Russia Growth
The Russian central bank, led by Elvira Nabiullina, is maintaining excessively high real interest rates (around 10%) despite falling inflation, which is choking economic growth and creating imbalances. While headline economic numbers appear positive, the policy is particularly harming small and medium-sized businesses and consumers, though Putin's personal loyalty to Nabiullina prevents policy changes despite calls from major banks for rate cuts.
Summary
Alexander discusses concerns about the Russian central bank's monetary policy under Elvira Nabiullina. While Russia's economy shows some positive indicators, including recent PMI readings of 50.3 (the strongest since February 2025) and growing real wages and wealth, Nabiullina's interest rate policy remains problematic. The central bank cut its key rate from 15% to 14.5% in June, but this half-point reduction is insufficient given falling underlying inflation. The real interest rate remains around 10%, meaning Russian consumers and small businesses pay 12-13% on loans, with some paying up to 20% or more. This high-rate environment has created an economically damaging situation: large industrial companies like Rosstec avoid borrowing entirely and fund investments through retained profits, while SMEs and consumers face prohibitively expensive credit. The speaker argues this represents overcooling of the economy and risks suppressing growth and potentially triggering deflation below the central bank's 4% target. Even German Gref, CEO of Sberbank and historically a monetary hawk, has publicly stated the economy cannot function long-term at 10% real rates. The core issue stems from Nabiullina's belief that the economy operates at full capacity and that rate cuts would immediately trigger dangerous overheating. The speaker contends this assessment is wrong and that significant spare economic capacity exists. The transcript reveals Putin's loyalty to Nabiullina—who successfully stabilized Russia's financial system and navigated the 2022 crisis—prevents policy changes despite economic costs. A similar pattern occurred 2014-2019 when Nabiullina maintained 5% real rates for five years until Putin finally intervened in 2019, after which growth improved before pandemic and military operation disrupted progress.
Key Insights
- Nabiullina's half-point rate cut from 15% to 14.5% is ineffective because falling underlying inflation means the real interest rate gap remains constant at approximately 10%, providing no actual monetary easing
- Large Russian industrial groups do not borrow from banks; instead they fund substantial investment programs entirely through retained profits, meaning they are insulated from high interest rates while SMEs and consumers are severely harmed
- Nabiullina operates under a belief that the Russian economy functions at full capacity, making her resistant to rate cuts due to fears of immediate overheating and inflation, though other economists argue significant spare capacity exists
- Putin maintains loyalty to Nabiullina based on her historical achievements in cleaning up the banking system, stabilizing the exchange rate, and decisive action in 2022, making him unlikely to remove her despite economic costs
- German Gref, historically a monetary hawk and CEO of Russia's largest bank with closest contact to actual economy conditions, publicly stated the economy has already been overcooled and real interest rates around 10% cannot be sustained long-term
Topics
Transcript
[0:00] All right, Alexander, let's uh talk about the Russian economy, which uh seems to be doing very well. All the numbers are pointing to an economy that is uh that is doing well. And uh and we have the the central bankina refusing to cut interest rates again or or she or she cut just just a little bit half a point. I believe you said was her interest rate cut. Then of course you have uh you have people like um like [0:30] Spread Bank, the CEO of Spread Bank saying you got to do more. Got to cut more. Come on. What are you doing? Uh all the numbers are are are showing that that things are…
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