Russia imposed some capital controls to stem a drop in the ruble, the third-worst-performing currency in emerging markets this year.
(Bloomberg) — Russia imposed some capital controls to stem a drop in the ruble, the third-worst-performing currency in emerging markets this year.
The government announced late Wednesday that 43 of the country’s biggest exporters, including its main oil producers, will be required to sell their earnings from foreign sales on the domestic market for rubles to ensure a supply of foreign exchange. Russia had imposed similar requirements as the ruble plunged after the invasion of Ukraine in 2022, but then lifted them when the currency recovered.
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In the last few months, the ruble has resumed its declines, battered by rising inflation amid the ballooning cost of funding its war in Ukraine. An emergency rate hike by the central bank in August, followed by another increase last month, failed to stop the currency’s slide, which has taken the ruble to the psychologically important level of 100 per dollar.
“The main goal of these measures is to create long-term conditions for increasing the transparency and predictability of the foreign exchange market and reduce the possibility of currency speculation,” First Deputy Prime Minister Andrey Belousov said in a statement.
The authorities will set volumes and other details of the mandatory-sales mechanism, with some companies required to report on their transactions to authorities. The government statement cited a presidential decree imposing the capital controls, but that document wasn’t published.
“The fact that the government and the Bank of Russia see the need to coordinate hard currency sales and purchases suggest the deterioration of the local FX market – it is now considered too shallow and illiquid to function in an unregulated way,” Bloomberg Economics analyst Alexander Isakov said. “The measures are unlikely to reduce pressure in the long-term, but may increase FX supply in the coming weeks and months.”
The ruble has continued to decline as demand for hard currency in Russia increases amid a recovery in imports at a time when the economy is under international sanctions over the war. Russia’s major exporters, the main providers of foreign currency, have experienced significant declines in export revenues.
The government had considered reimposing capital controls in August, but backed down under pressure from the central bank.
(Updates with more detail, background from fourth paragraph)
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