UPDATE: Putin’s aide says strong ruble creates problems for economy

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MOSCOW, Jul 21 (PRIME) -- The ruble has strengthened too much against the U.S. dollar creating problems for Russian exports and imports substitution, and the government and the central bank will tackle it, Andrei Belousov, aide of President Vladimir Putin, told reporters on Thursday.

“In my point of view, the ruble is too strong today, and it creates difficulties, I mean, this means lower revenue for the budget making the budget problem worse. It undermines competitiveness of Russian producers and the agriculturre, and I would like to stress that it partially offsets import substitution,” Belousov said.

“We actually see some slowdown in export growth, because competitiveness depends on a weak or strong ruble, and it is hardly the only problem, hardly the only factor which determines everything here. But, of course, objectively, ruble strengthening also puts exports under pressure.”

The government and the central bank have a whole array of instruments to curb the ruble firming, Belousov said. “What they will decide, what they will choose is a question of the current policy and responsibility of the government’s leadership and the central bank,” he said.

But a central bank representative told PRIME, “The central bank has no plans to abandon the floating exchange rate and has no plans to influence the exchange rate. The floating exchange rate is a built-in stabilizer of the economy, which proved to be effective. The floating exchange rate is a mechanism, which balances interests of various economic agents, including importers and exporters.”

RISE BY 1 RBL, OR BUDGET LOSS OF 150–160 BLN RBL

Andrei Klepach, CEO of Russian development bank Vnesheconombank (VEB) and a former Deputy Economic Development Minister, said that budget losses caused by a ruble rise by 1 ruble against the dollar stand at 150–160 billion rubles annually and called on the central bank to cap the growth.

“According to the central bank’s ideology, it must take measures to limit ruble strengthening, and I believe that it would be sensible. It means that currency must be bought, reserves must be boosted, especially after we have lost a lot over the years, some increase in reserves is a good thing,” Klepach said.

The ruble may strengthen a bit in future, but will likely be close to the current level of 63–64 against the dollar until the end of 2016, he said.

“The ruble has a growth potential, because the oil price is high, and capital outflow is falling. But a further rise of the ruble may have a negative and restraining influence, because exporters’ revenues, or more precisely, their purchasing power is under pressure, and conditions for import substitution are worsening.”

The ruble fell below a psychologically important level of 70 against the dollar in March, and was below 63 against the dollar in mid-July. The Russian budget for 2016 is based on an oil price of U.S. $50 per barrel and a ruble rate of 63.3 against the dollar.

(63.4183 rubles – U.S. $1)

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