Finance Minister Anton Siluanov Seeks to Devalue the Ruble to Promote Growth
Published: June 20, 2013 (Issue # 1764)
MOSCOW — Staring down the barrel of the slowing economy and falling tax revenue, Finance Minister Anton Siluanov on Tuesday rejected proposals to lay responsibility for growth on the Central Bank and offered his way out of the government’s predicament — devalue the ruble.
Siluanov’s ministry will use oil revenue destined for the Reserve Fund to buy currency on the market and weaken the ruble by 1 to 2 rubles ($0.03 to $0.06), he told Bloomberg.
Insisting that “market mechanisms, rather than administrative methods,” would be used, he said the measure would make exports more competitive, while a 1 ruble drop in the exchange rate could bring an additional 190 billion rubles ($6 billion) into the budget. The scheme may be launched as early as August.
“During the past 10 years, the ruble’s nominal rate has practically remained unchanged, while prices have grown substantially,” Siluanov said. “That has led the ruble to strengthen in real terms, which is negatively affecting Russian exporters.”
The State Statistics Service this week revealed growth of 1.6 percent in the first quarter of 2013, down from 4.8 percent in the same period last year. Vladimir Putin has held a series of high-level strategy meetings focusing on the problem, Reuters reported. In last week’s budget speech he requested spending discipline and signaled that the Reserve Fund and Pension Fund would be used to finance infrastructure projects.
The finance minister also rejected a proposal to charge the Central Bank with ensuring growth, saying it was “without substance and blurs the lines of responsibility for economic growth between the government and the Central Bank.” The initiative had been based on the dual mandate of the U.S Federal Reserve Bank to pursue both price stability and full employment.
The Central Bank, by not reducing interest rates, has been accused of obstructing growth. RusAl chief executive Oleg Deripaska said in January that the bank’s policy had “sucked all blood from the Russian economy.”
However, inflation is predicted to fall back from 7.4 percent in May into the Central Bank’s target range of 5 to 6 percent from the third quarter of this year, according to a Reuters survey, removing the chief impediment to cutting rates.