President Vladimir Putin will in the next weeks choose a new head of Russia's central bank, with economists hoping he picks a dependable figure and not a wild card to head one of its few trusted institutions.
The Bank Rossii (Bank of Russia) is facing key policy choices as it tries to keep a lid on resurgent inflation without harming economic growth. The bank’s relatively hawkish recent stance has frustrated some of Putin’s allies who want looser monetary policy.
Putin will be presenting to parliament a successor to outgoing chairman Sergei Ignatyev, 65, a dignified economist respected by markets who has turned the bank’s policy priority towards keeping inflation in check at a time of high oil prices.
The choice of continuity could be a figure like deputy central bank chairman Alexei Ulyukayev. However a more radical choice like Kremlin economic adviser Sergei Glazyev could upset market and intensify Russia’s problems with capital flight.
Speaking in the city of Vologda on Thursday, Putin in typically tantalising style hinted that his mind was already made up and the appointment could come as a surprise to some.
"It’s going to be an unexpected figure. You are going to like it," the RIA Novosti news agency quoted him as saying without giving further details.
The Bank of Russia won respect during the 2008-2009 financial crisis with well-calculated injections of liquidity into the economy and finely-judged currency interventions to support the ruble that saved Russia from an even deeper crisis.
"Everyone gives them a lot of recognition, everyone says it’s a properly working institution. Obviously, you don't have many such examples in Russia," said Ivan Tchkarov, chief economist at Renaissance Capital.
"It will be very difficult for the successor whoever he is, given this environment of economic growth which is not even close to what Russia was seeing in the pre-crisis years," he added.
Russia’s main refinancing rate currently stands at 8.25 percent with the central bank resisting pressure to begin a cutting cycle to support lagging growth, pointing to the risk from inflation that stood at 7.3 percent in February.
"The central bank is not to blame for the economic slowdown or the acceleration in inflation but it is the one who must take the difficult decisions," said Julia Tsepliaeva, the head of Russia and CIS market economics at BNP Paribas.
-- 'Markets already skittish on Russia' --
The independence of the Bank of Russia is written into the Russian constitution and its chiefs would hardly have been comforted by the growing pressure from politicians to loosen monetary policy.
With his choice of successor to Ignatyev, Putin will show how inclined he is to respect the bank’s independence and how tempted he is politically by a short-term dash for growth that could have dangerous consequences.
"The market is already skittish about Russia, and is waiting to see how committed the bank is to controlling inflation," said Alexander Kliment of the Eurasia Group research firm.
"If Putin appoints a weak or dovish head, investors will lose faith entirely and it will take years to regain credibility," he added.
Kliment predicted that Putin would still appoint a "strong, hawkish figure", saying he believed Putin is "aware that destroying the bank’s tenuous credibility with the market would be a disaster."
The choice of Ulyukayev would be the most predictable and would reassure markets that Ignatyev’s policies and independence would be preserved.
Another pro-market choice would be liberal former Russian finance minister Alexei Kudrin but he appears to have ruled himself out of the running.
A different kind of choice would be figures like Andrei Kostin, the chief executive of Russian state bank VTB and its retail chief Mikhail Zadornov, who would be expected to adopt less hawkish policies at the helm of the central bank.
But the biggest bete noire for the markets would be Glazyev, who has argued that Russia is in danger of an economic takeover by the West and would be expected to let the economy heat up to reach the government’s growth targets.
Given Putin’s track record of causing surprises, perhaps his "unexpected" candidate is someone who is not being mentioned in the pre-appointment speculation at all.
"President Putin likes surprises and he could, as in the past, surprise everyone by proposing a candidate that no-one has thought of," said Tsepliaeva of BNP Paribas.