MOSCOW: Russia’s Finance Minister said yesterday he would welcome a weaker rouble to revive flagging economic growth, but while the approach may boost fiscal revenues there is a risk that inflation could become entrenched.
Anton Siluanov’s call for a weaker currency follows a series of meetings chaired by President Vladimir Putin, who has pressed the government to meet spending promises made on his return to the Kremlin in May 2012 in the search for more growth.
The $2 trillion economy, the world’s ninth largest, grew by 1.6 percent year-on-year in the first quarter of this year — its slowest since 2009. Weakness ran into May, with industry output shrinking by 1.4 percent from a year earlier. “The Finance Ministry would accept a certain weakening of the rouble’s exchange rate, but only as long as it is driven by the market and not by administrative methods,” Siluanov said.
“A small weakening of the rouble can play a positive role for budget revenues and for the economy as a whole”, he added.
The International Monetary Fund, however, urged Russia to keep spending in check, fight inflation and accelerate reforms aimed at putting the economy on a broader footing rather than manipulating demand or the currency.
“There is no point in monetary or fiscal stimulus,” the IMF’s mission chief for Russia, Antonio Spilimbergo, told a news conference after an annual visit. “The economy is running at full capacity. A weaker rouble will not boost the economy.”
Moscow has made scant progress in developing a manufacturing base to diversify away from relying on its mineral wealth, weighed down by a nominal exchange rate that has remained stable while wages and the cost of living rise faster than elsewhere.
Weakening the rouble would help exporters in that battle while also encouraging domestic producers in the vast, resource-rich country to compete on price with imports.
It would also benefit the budget through the higher return from oil exports, with a one-rouble decline in the exchange rate to the dollar overall worth an estimated 190bn roubles ($6bn) in annual revenues. The rouble has fallen by more than 5 percent this year to 36.92 against the dollar-euro currency basket targeted by the central bank. It weakened further after Siluanov’s comments.
The government last year introduced a so-called fiscal rule, capping new borrowing at 1 percent of gross domestic product, making it hard to ramp up spending in an increasingly desperate struggle to revive growth.
The central bank has held off from easing monetary policy because inflation, at 7.4 percent, remains above its 5-6 percent target range. Putin’s dovish economic adviser Elvira Nabiullina takes the helm next week, possibly heralding interest rate cuts.
Reuters
