Kremlin report of meeting between Putin and Central Bank Governor Nabiullina confirms ongoing strengthening of Russian financial system.
Putin’s website is providing details of an interesting meeting between Putin and Central Bank Governor Nabiullina.
Nabiullina’s remarks to Putin provide an insight into the state of the economy and on the steps the Russians are taking to strengthen their financial system.
Obviously Putin’s website only publishes details of meetings the Kremlin wants made public.
It would be naive to think that everything Putin and Nabiullina ever say to each other is made public, and no-one thinks it.
Meetings such as the one between Putin and Nabiullina of which we have just been given details are carefully staged and prepared in advance, precisely so that the information exchanged at them can be made public by the Kremlin in this way.
That does not make what Nabiullina told Putin any less important or interesting, and in this case two important facts came out of the meeting.
The first is that after a torrid period caused by last year’s ruble crash, Nabiullina has confirmed that Russia’s banking sector has turned the corner by returning to profit in the second quarter. It was probably in order to announce this that the meeting was held.
This is the strongest indicator yet of an improving economy. The 4.6% contraction in GDP in the second quarter has inevitably produced some lurid headlines, but was in reality an entirely natural - and inevitable - one-off consequence of the sharp interest rate rise and of the inflation hike caused by last year’s ruble crash.
With interest rates and inflation coming down, and with the banks recapitalised, the stresses in the banking system that existed at the start of the year have apparently been overcome.
This should pave the way for the anticipated recovery in the rest of the economy - which ultimately depends on increased bank lending - that has been forecast for the last quarter.
There are in fact early indications that the recession hit bottom in June and that a recovery may have started in July. However it would be best to suspend judgement on this until the full data are in.
The second thing Nabiullina is reported to have told Putin is that Russia’s new bank payment card (which she disclosed is to be called Mir) will be up and running next year, as will the new credit ratings agency that Russia is busy setting up.
Though Nabiullina did not mention it, earlier reports said that Russia’s new interbank payment system, which is being created to parallel SWIFT, is currently under test and should also be in operation next year.
Taken together with the rapid - if forced - repayment of Western loans that is currently underway, what that means is that Russia’s financial system is rapidly becoming independent of the US financial system and its institutions.
What that means in turn is that US financial leverage over Russia is rapidly diminishing and may lose effectiveness entirely within a few years.
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