A stronger ruble is inevitable and won’t prompt the Russian government to impose capital controls, Deputy Finance Minister Dmitry Pankin said.
The currency’s appreciation is “a real problem” for Russia’s economy because it cuts budget revenue, particularly from oil and gas sales priced in dollars, and makes it harder for Russian manufacturers to sell their goods abroad, Pankin said in an interview in London yesterday.
“I can’t say we support ruble appreciation, it’s a real problem for the Russian economy, but still it’s inevitable,” Pankin said. “Up to now we have a more liberal capital control approach and we have no immediate plan to introduce any kind of capital restrictions.”
The ruble is benefiting from oil prices above $70 a barrel and growth prospects in Russia, which together with China, Brazil and India, the so-called BRIC nations, are seen propelling the global recovery after the credit crisis. The currency also may attract capital as investors look for alternatives to Europe’s crisis-ridden debt markets.
Dedicated BRIC equity funds had their best week since early March during the seven days through yesterday, attracting $772 million, a report by EPFR Global showed. Within the emerging Europe, Middle East, and Africa group of markets, Russia “which has been aggressively cutting interest rates and sells plenty of dollar-denominated commodities, stood out,” with the funds investing in Russian stocks receiving $124 million in the past week, EPFR said in an e-mailed statement today.
The ruble may gain an inflation-adjusted 20 percent in the next three years against the currencies of Russia’s major trading partners, a government report said this month. It traded little changed at 31.1350 per dollar as of 1 p.m. in Moscow, and weakened 0.2 percent to 38.3050 to the euro. Bank Rossii keeps the currency within a trading band of 26 to 41 against a basket made up dollars and euros.
When oil prices rise, the ruble strengthens and the central bank needs currency flexibility to fight inflation, Pankin said. The central bank plans to gradually allow it to trade freely.
Russia wants the ruble to be one of the world’s reserve currencies as the country seeks to reassert its economic influence after last year’s recession. The ruble should gain reserve status as Brazil, China and India also seek increased roles for their currencies, Pankin said.
“It’s inevitable and it’s necessary to raise the number of reserve currencies,” Pankin said. “It’s a market requirement that it’s not only a dollar/euro basket.”
Russia, which holds the world’s third-largest currency reserves, would consider including the yuan, real and rupee in its currency reserves, should those governments lift currency restrictions and make them fully convertible, Pankin said. The central bank already said it may add the Australian and Canadian dollars to its international reserves.
Russia in April sold $5.5 billion of bonds, the second biggest emerging-market dollar debt offering on record, and a return by the country to world capital markets for the first time since defaulting in 1998.
While Russia is now concentrating on its domestic bond market to raise funds to finance its budget deficit, another bond sale abroad this year or next remains “possible,” Pankin said. The bonds to be sold abroad may also be denominated in rubles, he said.