26 May 2022 17:56

Important to return to ruble's former equilibrium rate, continue to lower key rate, FX sales limit - minister

OREKHOVO-ZUYEVO. May 26 (Interfax) - The ruble needs to return gradually to its previous equilibrium rate, Maxim Reshetnikov, the Russian economic minister, told reporters.

The statutory limit for the sale of export revenue and the Central Bank's key rate should also continue to be lowered, he said.

"It is important that we are gradually lifting restrictions, including lowering the mandatory sale of foreign exchange revenue [from 80% to 50%]. This is an important decision, we expect that this to continue [to be lowered]," he said.

"It is clear that we are now somewhere near a local minimum [for the dollar's exchange rate] because, of course, the current exchange rate is a problem in the long term as the [ruble's] real effective exchange rate is 40% stronger than the five-year average. This means a serious challenge for the domestic manufacturer, which, as import channels are restored, will feel the pressure of this import more and more, have to compete with it and lose that competition. This is a question of exports: this exchange rate is offset by high dollar prices for energy. But, for example, there are already several positions in agriculture, those meat producers, they say that at such a rate they are becoming uncompetitive in foreign markets," he said.

"Now we are saying we need import substitution, but if we say there will be such a rate for the long term, then, of course, business will not launch any import substitution projects, because they will not be competitive," Reshetnikov said.

"So we need to return gradually the equilibrium rate that we had before," he said.

"Of course, some strengthening is inevitable, but still, what we are now observing, we proceed from the fact that this is a local minimum. We will continue to implement the measures. And most importantly, we will continue, I hope and I am sure, to work together with the Central Bank so that we can do it when needed - I welcome today's interest rate decision [to reduce it from 14% to 11%] and the commentary that the Central Bank gave is very important regarding the possibility, the strong likelihood of further decisions to reduce the key rate at the next meeting, which will be held in early June," he said.

"So it is very important for us to take such good steps. Economic activity cannot recover without the availability of credit, because the budget has already exhausted most of its possibilities, we really have adopted a large package of measures," he said, explaining the need for the ruble to weaken further from its current levels.