Unable to criticize Putin, Russian oligarchs turn ire on central banker

Instead of blaming the war for the hostile business environment though, Russia’s business elites are pinning their discontent on the governor of the country’s central bank.

Elvira Nabiullina, in a so-far fruitless effort to crimp inflation, has jacked up the bank’s key interest rate to a record, sending borrowing costs soaring.

“Today’s central bank rates are a very serious challenge to the development of the economy and industry," billionaire Alexei Mordashov, who controls steelmaker Severstal, was quoted as saying recently by Russian business publication RBC. “Is this the right medicine? I hope that the medicine does not turn out to be more harmful than the disease."

The corporate discontent is a symptom of the increasing economic pressures facing President Vladimir Putin’s Russia. Propped up by oil sales and massive military spending, the economy has been surprisingly resilient, but the conflict has also amplified economic imbalances, propelled inflation higher and set off a deep labor crunch. Recent additional U.S. sanctions caused the ruble to plummet, while local companies are slashing expansion plans.

“The elites are fighting for survival and while they remain loyal to Putin, they are increasingly discontent," said Alexandra Prokopenko, a former Russian central bank official who is now a fellow at the Carnegie Russia Eurasia Center in Berlin. “Nabiullina has become a convenient target."

Russia’s benchmark interest rate is set at 21%, and the central bank is expected to raise it further Friday. But inflation remains stubbornly high at around 9%. Surging butter prices have led to a spate of thefts of the product in supermarkets across Russia. Vodka prices have jumped, too.

In Russian boardrooms, with interest rates and inflation rising in tandem, margins are shrinking as costs mount. MTS, Russia’s largest mobile operator, recently blamed a near-90% drop in its third-quarter net profit on increased costs associated with servicing its interest payments. Rosneft, Russia’s largest oil producer, said last month it would be forced to delay modernizing its refineries, citing high interest rates.

Fears of a wave of bankruptcies are rising, too. More than 200 shopping centers in Russia are under threat of going bankrupt because of rising debt burdens, according to an industry association. Nearly a third of Russian freight haulers say they fear bankruptcy next year.

Sergei Chemezov, a close Putin ally who heads Russia’s state defense conglomerate Rostec, has been among the most vocal members of the elite, calling the interest-rate level “a serious brake on further industrial growth."

“Taking out a loan at a crazy interest rate is suicide for a business," he told Interfax news agency. “This is the path to bankruptcy."

Another frequent critic of the central bank, tycoon Oleg Deripaska, asked earlier this year for the “enslaving" rate to be lowered to 5% for the country “to breathe."

At a recent economic forum, Viktor Khaikov, the president of the National Association of Oil and Gas Services, asked a large audience for a show of hands of those industrialists who have significantly reduced their investments in technological development due to increased interest rates. All raised their hands.

With the backlash against Nabiullina growing, some have called for her dismissal.

Earlier this month, Sergei Mironov, leader of the third-largest party in Russia’s State Duma, suggested Nabiullina should be sacked and held personally accountable for the economy’s troubles. The lobby group Russian Union of Industrialists and Entrepreneurs has proposed giving the government oversight of some aspects of monetary policy.

“In effect, Nabiullina has to choose: preserve the institutional independence of the Central Bank, or become the sworn enemy of a large part of Russian business," Russian independent business outlet the Bell wrote.

Still, Putin is unlikely to replace the governor or change monetary policy, Kremlin observers say.

An ally of the Kremlin leader for over two decades and a key member of his economic team, Nabiullina’s emergency measures early in the war arrested the slide in the ruble and bought time for the government’s stimulus measures to reach the real economy.

She has defended the bank’s monetary policy as necessary to fight rising prices.

“High inflation thwarts sustainable economic growth," Nabiullina said in October. “It is a dangerous illusion that elevated inflation can be kept within a certain range."

Putin has so far stayed out of the fray, urging business leaders at a meeting Monday to see beyond monetary policy. “The economy is more than the interest rate," he said. Observers say that the Russian president, keenly aware of the deep economic crisis of the 1990s when inflation skyrocketed, is likely to give priority to price stability.

“Nabiullina has the full backing of Putin. She could even drive the Russian economy into recession if it is necessary to control inflation," said Janis Kluge, an economist focusing on Russia at the German Institute for International and Security Affairs.

Although unlikely to sway Nabiullina, the business elite’s objections are emblematic of how the war has hampered any long-term business planning.

“Russian businesses and bureaucrats operate with extremely short planning horizons," Prokopenko, the former Russian central bank official, said. “If they had a road map for, say, 2026 or 2030, they might be willing to endure short-term challenges, including Nabiullina’s inflation-curbing policies. But without this long-term perspective, frustration mounts."

To be sure, although economic risks are growing, experts don’t foresee an immediate crisis that would constrain Putin’s ability to wage war. Russia has managed to mostly overcome Western restrictions on its oil sales, and war spending continues unabated. Military expenditure hit a post-Soviet high this year and is planned to rise further, to around $130 billion next year, or more than 6% of gross domestic product.

That, though, means that the clash between the business elite and the central bank is destined to continue.

Re: Russia, a research group, expects Russian authorities to continue pursuing what it calls a “two tap" policy: While the central bank is trying to cool the economy by raising the interest rate, or tightening the monetary-policy tap, the government is heating up the economy by injecting funds, loosening the budget-spending tap.

“This strategy does not effectively address inflationary pressures, posing a challenge to broader economic stabilization efforts," it said in a recent report.

Kate Vtorygina contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com