The head of the Bank of Russia, Elvira Nabiullina, supported Finance Minister Anton Siluanov in solving the problem of a too strong ruble. Details of the discussion of the economic bloc of the government with the head of the Central Bank are given by Frank Media.
Nabiullina admitted that the regulator has almost no opportunity to influence the ruble exchange rate in the usual ways, but the Ministry of Finance still has an effective tool. We are talking about the formation of a budget rule, thanks to which the department will buy up foreign currency on the market and create pressure on the ruble. This method will be equivalent to the regulator's foreign exchange interventions.
“One of the tools that stabilizes the real effective exchange rate is the budget rule. Many do not like the budget rule, because it is a reduction in budget expenditures, you cannot immediately spend market revenues, etc. But in reality, this is a stabilizer of the real effective exchange rate, ”said Elvira Nabiullina
Before the war, the budget rule determined the volume of replenishment of Russia's reserves, in particular, in the National Welfare Fund (NWF), foreign exchange and gold. It was assumed that all oil and gas excess profits go to reserves, the cut-off price was at the level of $44.2 per barrel. However, the war with Ukraine and the sanctions that followed it forced the authorities to radically change the principles of budget formation, and the budget rule itself was sent for revision. In 2022, all budget revenues go to current expenses, and no reserves are formed.
“The Ministry of Finance used to invest excess profits from oil and gas in foreign currency, in the National Welfare Fund, and so on, within the framework of the budget rule. Now foreign currency is toxic, but we are ready to do this in order to influence the exchange rate in the currencies of friendly countries,” said Anton Siluanov.
The Ministry of Finance proposes to form reserves through cross-rates, namely by buying the currencies of friendly countries, and through them – to influence the dollar and euro rates. To do this, according to the minister, it is necessary to restore the operation of the budget rule, albeit in a new version. Nabiullina still has questions about what currencies it will be decided to buy instead of the usual dollars and euros, but she confirmed her agreement in principle with the Finance Ministry's scheme.
“We will discuss this issue with the economic bloc of the government. Central Bank agrees. The Ministry of Finance agrees. It remains to convince and prove to our other colleagues that the budget rule is important not from the point of view of savings, but also from the point of view of the impact on the exchange rate,” Siluanov said.
According to the Ministry of Finance, about 1 trillion rubles will have to be spent to strengthen the dollar by 10 rubles, while the fall of the dollar by one ruble deprives the Russian budget of revenues in the amount of 130 to 200 billion rubles.
However, the Ministry of Economic Development does not yet find the arguments of the Central Bank and the Ministry of Finance convincing. The head of the department, Maxim Reshetnikov, is convinced that it will be too difficult to assess the prospects for indirect interventions by the Ministry of Finance. Reshetnikov worries that the fiscal cuts that follow the resumption of the fiscal rule will hurt Russia's economic stimulus.
Nevertheless, the overly strong ruble exchange rate remains the main economic problem for the Russian authorities. The growth of the ruble hits exporters: their incomes fall, and they become uncompetitive in foreign markets. Metallurgists were the first to suffer from the excessive strengthening of the ruble; due to the fall of the dollar, they are already working on the verge of profitability. At the moment, the authorities call the optimal exchange rate of the ruble against the dollar in the region of 70-80 rubles.