Moscow, Russia. The Russian government is considering an early return to the foreign currency market after the rouble rallied this month on higher oil prices, Finance Minister Anton Siluanov said on Thursday.
Suspension of forex transactions and budget rule
Russia suspended its forex transactions in March until July after falling oil revenues at the start of the year threatened to deplete its fiscal reserve fund amid the military action in Ukraine.
Under Russia’s budget rule, the government buys foreign currency for the fund with tax revenues collected when oil prices exceed a cut-off point, currently set at $59 per barrel. If oil trades below that level, the government sells foreign currency from the fund to cover the budget deficit.
Oil price move and rouble strength
When oil prices spiked in March due to the Iran war, incoming forex revenues helped the rouble firm 8% against the US dollar in April. Analysts and businesses questioned the logic of the pause under the changed circumstances.
Siluanov comments and market reaction
“The government will consider this issue. I think it would be possible to resume this discussion now, and I believe the government will make a decision on this part in the near future,” Siluanov told a business conference on capital markets in Moscow.
The rouble, which strengthened to its highest level against the dollar since May 2023 on April 15 in the over-the-counter market, weakened slightly against the dollar after Siluanov’s remarks, according to LSEG data.
Policy trade-offs and economic context
A stronger rouble helps the central bank fight inflation but can weigh on economic growth by reducing exporting firms’ profits, forcing them to cut investment, and making Russian products less competitive.
President Vladimir Putin scolded officials for an economic contraction in the first two months of the year at a meeting on April 15. Russian economic growth is seen at around 1% this year.
Details of prior forex sales
Siluanov said the pause decision was made after the government sold foreign currency worth 500 billion roubles in January and February to cover the deficit. Without the pause, he said, the government would have sold foreign currency in March and bought an equivalent amount in April.
How do you think an early resumption of Russia’s forex transactions could affect the rouble and exporters?
