(Reuters.) – When the Bank of Russia increased interest rates for its first time in three year, Governor Elvira Nubullina wore a brooch shaped as a hawk in March 2021. It was one of many sartorial nods that Russian media have picked up on regarding Russian policy.

Nabiullina, a black-clad, grim-faced woman less than one year later, announced that she would more than double the policy rate of the bank to 20%, and also impose capital controls, as Russia was facing increasing economic isolation following its invasion in Ukraine.

It is likely that the central bank will keep the emergency rate in place when it meets Friday. Nabiullina who placed inflation-targeting as the central policy goal, could be forced to rethink her monetary orthodoxy by limiting the impact of the conflict.

Last week, central bank economists polled expected that the economy would shrink by 8.8% and inflation will reach 20%. Russia is suffering economic backlash after its invasion of Ukraine. Moscow describes it as a “special operation”.

Renaissance Capital economist Sofia Donets said Nabiullina’s firmness and consistency had made her an “exceptional” governor, but added: “Now the game rules are changing again and this is not the central bank’s choice – a new challenge may require rewriting the handbook.”

INFLATION FIGHTER

Nabiullina (58), an economist and ex-advisor to President Vladimir Putin was appointed surprise chair of the Russian central bank. It is one Russia’s most respected institutions.

Soon she was a staunch anti-inflationist, standing firm against calls by powerful industrialists as well as the Economy Ministry to reduce interest rates in order to boost growth.

“Nabiullina”‘s brooches added a playful touch to an otherwise technocratic image.

We need to reduce inflation in order support economic growth. “This is our primary goal,” she stated early in her term. “We don’t believe that monetary stimulation would be of any benefit to us.

Nabiullina, a December 2021 Nabiullina spoke to Reuters about how high inflation might undermine credibility of the central banks.

She was able to communicate with people in her early statements, which showed she understood the needs of ordinary Russians. They told pollsters that inflation was their most urgent economic issue. This line was held by her for many years and she stood firm in defense of it against any challengers, even those from Putin’s circle.

“Nabiullina’s reputation for being an inflation hawk as well as a reliable central bank governor has been very strong. William Jackson, Capital Economics chief emerging market economist, said that she floated the ruble and the (central banks) has cleaned-up large parts of banking sector under her supervision.”

It seems obvious that Putin must have supported her to accomplish this.

CRISIS MEASURES

A plunge in the prices of oil, Russia’s largest export, led to economic crisis. In the same period, Putin’s annexe of Crimea to Ukraine triggered western sanctions. Investors fled Russian assets.

Russians were hurt by Nabiullina’s decision to let the ruble fall. They saw their dollars saved disappear while imported goods prices rose. Russia saw a 650-basis point rate increase, the largest since 1998’s financial crisis. It was only overtaken by one on February 28.

However, her efforts were creditable with preventing an economic collapse and Nabiullina was awarded several awards for central bank management.

Nabiullina’s strategy of floating the rouble instead of spending to keep it up allowed her to accumulate $640 million in foreign and gold reserves. But, when Russians tried to rescue their savings, Nabiullina was told that she couldn’t use the funds as sanctions had been imposed.

When she was asked about reserve management in December, her answer included both geopolitical and economic risk.

Nabiullina was opposed to capital controls in the Ukraine crisis. She may now be required to give up her desire for inflation as a goal.

Natalia Orlova from Alfa Bank said that the economic system operates either in a market-mode, where capital flows are constructed based market factors, such as the exchange rate and key rates, or the capital can’t move freely. Then, the importance of the key interest rate as an instrument for policy is reduced sharply.”

TIME UP

Nabiullina was a rarity in Russian politics. She made it a point to hire others. Ksenia Yudayeva (monetary policy deputy) was described as being the most competent team within the history of the central bank in 2013.

Modernizing the institution also meant that an institution, which had not disclosed the date of its meetings in the past few years, held regular briefings on news. The central bank however has stated she will not be taking questions on Friday.

It is unknown if Nabiullina will continue to serve her term after it expires in June. The central bank refused to comment, but the rules state that Putin has to nominate her by March 24.

Jackson at Capital Economics declared that Russia’s crisis in Ukraine “will accelerate Russia’s shift toward isolation and autarky”, a change from Nabiullina’s policies.

His statement was, “While Nabiullina is credible as a policymaker and I do not think she should be doubted,” he stated.