Russian government, central bank disagree publicly over extending capital controls

By Alexander Marrow, Darya Korsunskaya and Elena Fabrichnaya

MOSCOW (Reuters) -Russian authorities publicly disputed the efficacy of capital controls on Tuesday, with the central bank swiftly opposing the government’s proposal to extend a requirement forcing exporters to convert foreign currency revenues.

The spat between the government and the central bank highlights the discord in the upper echelons of the Russian establishment that can occasionally spill out into the public arena. High interest rates and hefty budget spending have sparked similar public disagreements in the past year.

The government argued that the capital controls, ordered by President Vladimir Putin in an October decree, have been effective, and said they should be extended until the end of the year. They are currently set to expire on April 30.

But the central bank, which previously warned that currency controls were inefficient and would ultimately be circumvented, said it saw no solid grounds for their extension.

The controls were introduced as the rouble tumbled past the 100 mark against the dollar and authorities sought to wrest back control of the foreign exchange market. It was trading near 88 to the dollar on Tuesday.

Extending the capital controls would soften exchange rate spikes and lower risks for rouble weakening, said Alfa Investments analysts.

The decree requires dozens of undisclosed exporting firms to deposit no less than 80% of foreign currency earned with Russian banks, and then sell at least 90% of those proceeds on the domestic market within two weeks.

“It can be noted today that, according to the available data, exporters have generally observed the presidential decree’s requirements,” First Deputy Prime Minister Andrei Belousov said.

“This has made it possible to cover the deficit of foreign currency needed by importers to maintain supplies of products to our country.”

But the central bank said high interest rates, which it hiked to 16% in December, and strong export revenues in summer 2023 were more impactful.

“The Bank of Russia believes that the impact of this measure on the FX market in the past months was moderate in comparison with the impact on the exchange rate of monetary policy, the level of the key rate,” the central bank said.

“The growth in export cost volumes, which affect the FX market with a lag, associated with the timing of conducting foreign trade settlements, also made a significant contribution.”

Soon after the central bank’s response, the finance ministry also threw its weight behind the extension, arguing that the controls had steadied the domestic FX market and an extension was reasonable.

Major business union RSPP said more discussion was needed.

(Reporting by Alexander Marrow and Darya Korsunskaya in London and Elena Fabrichnaya in Moscow; Editing by Kirsten Donovan, Angus MacSwan and Jonathan Oatis)