Russia may buy yuan, rupees and Turkish lira for a rainy day fund – Central Bank
Russia is considering buying “friendly” countries such as the currency of China, India and Turkey to store in its own National Welfare Fund (NWF), losing the ability to buy dollars or Euro due to enrollment in the fifth central bank.
The national flag flies over the headquarters of the Central Bank of Russia in Moscow, Russia, May 27, 2022. REUTERS/Maxim Shemetov
The bank said it is pursuing a free-floating ruble exchange rate policy, but is demanding a sharp increase in the restoration of the fiscal rule, due to the need to overuse resources directed to the fund for a rainy day.
In a report on its monetary policy for 2023-2025, the central bank said that various options are currently being considered on how to return to the fiscal rule and end the NWF, taking into account Western decisions against Russia.
“The Ministry of Finance of Russia is studying the possibility of implementing an operational mechanism for the budgetary rule for replenishing / spending funds from the NWF in the currencies of friendly countries (yuan, rupees, Turkish lira, etc.),” the Central Bank said.
Under the fiscal rule, Russia has previously bought dollars and euros for the NWF, but not other currencies. In early 2022, she often made daily forex purchases for the fund amid increased ruble volatility.
The NWF is administered by the Ministry of Finance but is part of the central bank’s international reserves, which also include the yuan. As of February, they amounted to about $640, which was received due to almost half of the frozen state.
Economics and stakes
The Russian economy is set to grow in 2024 after a two-year decline, by which time inflation will slow down to a 4% target, which the central bank says is likely to bring the central bank’s key target to 5-6% in 2025.
“Further development of the Russian economy is a significant uncertainty… The main task for the coming years is to create conditions for the rapid transformation of the economy,” the Central Bank said in a statement.
The key interest rate, the main monetary policy instrument of the central bank, will average 6.5-8.5% next year and will gradually decrease to 6-7% in 2024 and 5-6% in 2025 compared to from 8% as of 2025. The bank is now forecasting all of this in its base case.
The central bank also said there was no compelling reason to monitor capital movements after risks to the country’s financial stability subside.
Russia imposed capital controls after Feb. 24 to reduce risks to long-term stability, including freezing foreign currency withdrawals from bank accounts.
According to Thomson Reuters
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