Russia needs export overhaul but not capital controls, says central bank chief

  • Russia must rethink its exports – Nabiullina
  • Most capital controls should be scrapped – CB chief
  • No ban on Russians holding US dollar accounts
  • Inflation close to 14% in 2022
  • The ruble must remain floating – Nabiullina

June 16 (Reuters) – Russia must rethink the contours of its export-dependent economy to ensure the industry works for the domestic market, but most capital controls must be removed, the governor said on Thursday. Central Bank, Elvira Nabiullina.

Nabiullina, speaking at Russia’s flagship annual economic conference in St Petersburg, said a ‘substantial part’ of Russian industry should start working for the domestic market, rather than relying on exports for his income.

She said most Russian capital controls should be removed and there would be no ban on Russians holding bank accounts in US dollars or other foreign currencies.

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“We had an overlay of currency restrictions,” Nabiullina said. “My opinion is that they should be retired, most of them anyway.”

Russia introduced strict controls on foreign exchange transactions in response to Western sanctions against Russia, which included the freezing of around $300 billion in central bank reserves.

President Vladimir Putin has said Russia will thrive despite the West imposing the toughest sanctions in modern history, but will need to reorient the foundations of Russia’s $1.8 trillion economy.

Nabiullina warned that there were fears that the loss of access to technology could undermine the Russian economy.

She said Moscow needed to look at private initiatives to ensure technological development and prevent a slide into a Soviet-style situation in which Russia would fall behind its competitors.

THE RUBLE AND SPENDING

The recent rise of the ruble to multi-year highs against the US dollar has prompted the Russian government to call for a weaker ruble.

Deputy Prime Minister Andrei Belousov said the ruble was overvalued and the industry would be more comfortable if it fell to between 70 and 80 against the US dollar from the current 57.

But in St. Petersburg, Nabiullina defended the bank’s ruble strategy, telling reporters that the ruble rate should remain floating.

Nabiullina said spending on the National Wealth Fund (NWF), where Russia previously saved extra revenue from oil and gas, was not the same as printing money.

The current expenses of the fund, she said, corresponded to the “return of funds that have been accumulated over the past few years”.

“It’s not about printing new unsecured money from the air,” she said.

Nabiullina added that the pace of price increases, which surged in March following the imposition of Western sanctions, had fallen faster than the central bank’s initial expectations, pricing in year-end inflation close to 14%.

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Reuters reporting; edited by Guy Faulconbridge

Our standards: The Thomson Reuters Trust Principles.

James V. Hayes