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Russian Central Bank’s new appointments to help restore market confidence — experts

January 20, 2015, 16:53 UTC+3 MOSCOW
Senator Alexander Torshin is returning to the CB as deputy governor in charge of relations with the government and parliament, veteran banker Dmitry Tulin is taking the post of monetary policy chief
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Central Bank of Russia

Central Bank of Russia

© Anton Novoderezhkin/TASS

MOSCOW, January 20. /TASS/. Fresh appointments made at Russia’s Central Bank lately amid criticism of the regulator’s measures to defend the ruble are expected to return the market’s confidence in monetary authorities, experts said on Tuesday.

Senator Alexander Torshin is returning to the Central Bank as deputy governor in charge of relations with the government and parliament on Wednesday.

At the same time, veteran banker Dmitry Tulin will take up the post of the Central Bank’s monetary policy chief.

Torshin, a member of the ruling United Russia party, will be responsible for the Central Bank’s relations with both houses of Russia’s parliament, federal and regional executive authorities while Tulin will be charge of the ruble’s defense, inflation, international reserves management and refinancing operations.

Before the crisis year of 1998, when Russia both defaulted on its obligations and devalued the ruble, Torshin worked as a Central Bank deputy governor responsible for relations with government bodies and public organizations.

During this period, the regulator introduced a ruble trading band and tightened its monetary policy amid problems with the budget and the economy.

In the 1990s, Tulin also worked as a Central Bank deputy governor for supervision.

Experts views on the recent appointments in the Central Bank

Russian experts have said they view the Central Bank’s latest appointments positively.

“The Central Bank has been much criticized lately for its failure to communicate or explain measures it has taken or is taking. This has caused a crisis of confidence in monetary authorities,” said Anatoly Aksakov, deputy chairman of the State Duma committee for financial markets.

“I believe Torshin was picked as an experienced communicator to resolve this situation,” the lawmaker said.

Torshin is not a crisis manager but his appointment comes after some experts have criticized the Central Bank lately of its failure to communicate with society and the markets sufficiently, Chairman of the MDM Bank Board of Directors and former Central Bank First Deputy Head Oleg Vyugin said.

“Apparently, this is the reaction that the problem has to be resolved through personnel issues,” he said.

The expert said he expected changes in the regulator’s monetary policy with the appointment of Tulin.

“It is difficult to foresee but it seems to me that some modernization will take place. Perhaps, the policy will now increasingly take into account all the specifics of the situation, which Russia currently faces,” Vyugin said.

Russian presidential aide Andrey Belousov has said he also expects some changes in the regulator’s monetary policy after Tulin takes up the post of the Central Bank’s monetary chief.

“I believe some changes will take place. This is not accidental,” he said.

Measures taken by the Central Bank at the end of 2014

The Russian Central Bank abandoned in November 2014 the ruble’s trading band, which had existed in the country for the past 19 years.

The regulator said it would target inflation instead of the ruble exchange rate. The Russian Central Bank switched to the ruble’s free float several months ahead of its schedule, allowing the regulator to spend less from its foreign currency reserves on the ruble’s defense amid world oil prices hitting their four-year low and slowing business activity in Asia that strengthened the US dollar.

As the Russian currency stayed highly volatile, the Central Bank hiked on December 16 its key rate to 17% from 10.5% and increased foreign currency supply at its liquidity provision auctions. This measure helped the ruble strengthen from its record lows of 80 rubles to the dollar and 100 rubles to the euro.

Data provided by the Central Bank of Russia indicate that the regulator spent about $75 billion on the ruble’s defense in the first eleven months of 2014, or about 5% of GDP.

Therefore, the Russian Central Bank’s currency interventions in January-November 2014 to prop up the ruble are comparable with twice the amount of Russia’s debts on external bonds ($39.3 billion) or 1.5 times the amount of the country’s sovereign foreign debt ($53.7 billion).

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