Updated: 04/09/2013 21:26 | By Agence France-Presse

Russia parliament confirms Putin ally as bank chief

The Russian parliament on Tuesday confirmed President Vladimir Putin's economic advisor Elvira Nabiullina to head the central bank, even as she struck a hawkish stance on inflation and vowed not to stimulate growth through lower interest rates.


Russia's lower house of parliament backed her candidacy in a 360-20 vote three weeks after Nabiullina was picked to succeed the respected outgoing Bank of Russia governor Sergei Ignatyev.

She is due to assume her post on June 24.

Analysts worry that Nabiullina -- who until now served as Putin's advisor and was seen as one of his closest economic confidantes -- may be pliable to Kremlin pressure to lower rates to stimulate growth.

Russia's inflation is outpacing forecasts and has been treading at above seven percent in recent months.

Growth meanwhile has slowed from last year's tepid level of 3.4 percent. A top government official warned last month that it may slip to less than three percent for 2013.

This has left the central bank in a quandary about how to tackle politically sensitive cost of living increases without stifling growth any further.

But Nabiullina stressed in her confirmation hearing that her main worry was about Russia's current inflation rate.

"Inflation at a level of seven percent still creates a lot of uncertainties," Nabiullina said.

"Lowering inflation to between three and four percent should be the central goal of our monetary and credit policy," she stressed.

Russia's main interest rate has been kept steady at 8.25 percent for the past seven months. The latest central bank statement however hinted of an easing of this level in the months to come.

Nabiullina said her primary aim will be to lower inflation so that banks could start charging lower interest rates for loans that could be used by businesses to expand their output.

"I am far removed from the thought that the administrative lowering of the rates will stimulate growth," she observed.

Nabiullina -- a 49-year-old economist by training born in the mostly Muslim Russian region of Tatarstan -- further argued that it was up to Prime Minister Dmitry Medvedev's government to come up with a better strategy for improving investor confidence.

"The central bank must look after growth... but the government must look after ensuring a better business climate and investment boost."

She also promised to improve transparency in the opaque banking sector to solve problems stemming from "the huge capital outflow" from Russia into foreign-held deposits.

"We should be most concerned about the direct investment balance. And unfortunately, here we have a negative balance," Nabiullina told the Duma.

"We also have to look at outflows through illegal financial operations," she noted.

"The Bank of Russia must make sure that no questionable transactions are made through the Russian banking system."

The central bank has optimistically forecast an outflows figure of $10 billion for 2013 -- a marked improvement on the $54.1 billion figure recorded last year and the $80 billion seen in 2011.

Analysts attribute capital flight to a stifling investment climate in which regulators can act in a seemingly arbitrary manner to stop profitable projects and where corruption is rife.

Other contributing factors include a lack of sufficient court independence and the excruciatingly cumbersome business registration process.

But Russia's central bank has recently noted that a lot of the cash was leaving Russia illegally through illicit cash operations and other "dubious" schemes.

Outgoing bank chief Ignatyev in February put the illegal capital flight figure for 2012 at $49 billion -- equivalent to 2.5 percent of Russia's gross domestic product.

He added that some of the money involved "payments for deliveries of drugs, (illegal) shipments, bribes and paybacks to officials." Nabiullina on Tuesday called capital outflows "a huge problem".

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