Russia could buy yuan, rupees and Turkish liras for rainy day fund, central bank says


The national flag flies over the headquarters of the Russian Central Bank in Moscow, Russia, May 27, 2022. REUTERS/Maxim Shemetov

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  • This content was produced in Russia where the law limits coverage of Russian military operations in Ukraine

MOSCOW, Aug 12 (Reuters) – Russia is considering buying the currencies of “friendly” countries such as China, India and Turkey to hold in its National Wealth Fund (NWF), having lost the ability to buy dollars or euros because of the sanctions, the central bank announced on Friday.

The bank said it was sticking to the policy of a floating ruble exchange rate, but stressed the importance of reinstating a fiscal rule that diverts excess oil revenue to the rainy day fund.

In a report on its monetary policy for 2023-25, the central bank said various options on how to return to fiscal rule and replenish the NWF are currently being discussed, taking into account Western sanctions against Russia. .

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“The Russian Ministry of Finance is working on the possibility of implementing an operational mechanism of the budget rule mechanism for the replenishment/spending of the NWF in the currencies of friendly countries (yuan, rupees, Turkish lira and others),” the statement said. central bank. .

Under the fiscal rule, Russia previously bought dollars and euros for the NWF, but not the other currencies. It halted daily currency purchases for the fund in early 2022 amid heightened ruble volatility.

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 about $640 billion in February, nearly half of which was frozen under Western sanctions.

ECONOMY AND PRICES

The Russian economy will return to growth in 2024 after two years of contraction and inflation will slow to the 4% target by then, allowing the central bank to bring the key rate back to the 5-6 range. % in 2025, the central bank said.

“Future developments in the Russian economy are characterized by substantial uncertainty… The main challenge in the coming years is to create the conditions for a successful transformation of the economy,” the central bank said.

The key interest rate, the central bank’s main monetary policy instrument, will average 6.5%-8.5% next year and gradually decline to 6%-7% in 2024 and 5 %-6% in 2025, compared to 8% now, the bank projects in its base scenario.

The central bank also said it sees no good reason to keep capital controls in place once risks to the country’s financial stability abate.

Russia introduced capital controls after Feb. 24 to limit risks to financial stability, including imposing a limit on the withdrawal of foreign currency funds from bank accounts.

(This story has been reclassified, correcting “Russian” to “Russia” in the title)

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