Why does Russia need ruble to be stable?

Why does Russia need ruble to be stable?

The Russian government along with the Central Bank are preparing a joint strategy to tackle ruble long-term volatility, the First Deputy Prime Minister of Russia, Igor Shuvalov, told Bloomberg.

"It is obvious that at today's oil prices and given the decision taken not to spend additional oil and gas earnings, we can with confidence speak of the possibility of buying foreign currency on the market," Reuters cited him as saying.

Shuvalov said the government would work with the Central Bank on the development of common approaches aimed at reducing the long-term volatility of the ruble as its volatility hurt the exporters, not allowing them to plan business in advance. 

He added that the Ministry of Finance, the Ministry of Economic Development and the Bank of Russia were jointly discussing proposals on the government's system of interaction with the Central Bank in case of oil prices deviations from the budget levels.

Now the economists are discussing a new fiscal rule, which implies that if oil and gas revenues are higher than the projected oil price of $40 per barrel, the excess will be sent to the Reserve Fund and National Welfare Fund.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, speaking to Vestnik Kavkaza, the Russian Central Bank may abandon the "floating" rate of the ruble and start helping its stabilization, but now it is not something that interests it. "To date, the Central Bank is busy reducing inflation. Bur Shuvalov's idea of ​​long-term stability of the ruble while reducing volatility is sensible and can easily be solved," he believes.

At the same time, the economist drew attention to the need in the first place to protect the ruble from fluctuating oil prices. "As oil is a key export product of our country, a direct correlation between oil prices and the ruble exchange rate remains. Whatever we do, we are still firmly tied to oil. Of course, the initiative to stabilize the ruble should be welcomed, the government will probably be thinking about it and maybe there will be some decision - but to date there are no tools for it," Yuri Yudenkov pointed out.

According to him, the government has to think about such step right now for several reasons. "First, there is a catastrophic lack of dollar purchases - approximately 18-year-old minimum amount of currency purchases.  Second, ruble, with the current state of economy, a drop in oil prices will immediately lead to an increase in the dollar exchange rate. Of course, our government is thinking about the future, that is why Igor Shuvalov is requesting the Cabinet to work out measures to ensure the long-term stability of the ruble and reduce volatility," the Professor of the RANEPA faculty of Finance, Money Circulation and Credit stressed.

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