Russia is looking at buying currencies from “friendly” countries such as China, India and Turkey to keep in its National Wealth Fund (NWF), the central bank said on Friday after it lost its ability to buy dollars or euros due to sanctions. Has been.
The bank said it was sticking to a policy of a free-floating ruble exchange rate, but highlighted that it was important to reinstate a budget rule that diverts excess oil revenue into a rainy day fund.
In a report on its monetary policy for 2023-2025, the central bank said that various options for returning to fiscal rule and replenishing the NWF are now being discussed, taking into account Western sanctions against Russia.
“The Russian Ministry of Finance is working on the possibility of implementing an operational mechanism of the budget regulation mechanism for replenishment / spending of NWF in the currencies of friendly countries (yuan, rupee, Turkish lira and others),” the central bank said.
Under the budget rule, Russia first bought dollars and euros for the NWF, but not other currencies. It stopped daily purchases of foreign currency for the fund in early 2022 amid rising volatility in the ruble.
The NWF is managed by the Ministry of Finance, but is part of the central bank’s international reserves, which also include the yuan. These totaled around $640 billion as of February, about half of which was frozen under Western sanctions.
economy and rates
The central bank said the Russian economy will return to growth in 2024 after two years of contraction and inflation will slow to the 4% target, allowing the central bank to bring the key rate to a range of 5-6% in 2025.
“The further development in the Russian economy is characterized by substantial uncertainty … The main challenge in the coming years is to create conditions for the successful transformation of the economy,” the central bank said.
The prime interest rate, the central bank’s main instrument of monetary policy, will average 6.5%–8.5% over the next year and gradually fall to 6%–7% in 2024 and 5%–6% in 2025, up from 8%. is below. Now, the bank takes the forecast in its base case scenario.
The central bank also said that it does not see any strong reason to impose capital controls once the risks to the country’s financial stability are low.
Russia introduced capital controls after February 24 to limit financial stability risks, including imposing a limit on the withdrawal of foreign currency funds from bank accounts.
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