20 Jun 2022 13:39

Russian authorities debating ruble targeting, economic growth must be govt's, Central Bank's imperative - Belousov

ST. PETERSBURG. June 20 (Interfax) - The mechanism that makes it possible to ensure the sufficient stability of a floating exchange rate is not really working in the current conditions, so the government and Central Bank need to rethink the economic mechanisms of recent years and give pride of place to growth, for which an optimal ruble exchange rate is also important, First Deputy Prime Minister Andrei Belousov said in an interview with Interfax on the sidelines of the St. Petersburg International Economic Forum.

The excessively strong ruble was one of the main topics at the macroeconomic sessions at this year's forum.

The consensus view is that the optimal ruble exchange rate for the Russian economy is 70-80 rubles per U.S. dollar, and it is necessary to return to it as quickly as possible, Belousov said.

"Such a discussion is already underway both at the expert level and in government institutions," he said when asked if there should be a discussion about reviewing the approach to monetary policy, including the radical step of switching to targeting the ruble rather than inflation.

"And it is related to the recognition of a simple contradiction. We do indeed now have a strong current account balance. And while before this current account balance was offset by capital outflow, today the capital outflow is limited. Is this good or bad? From the point of view of the current policy of a floating ruble it is bad, because the ruble is strengthening, but from the point of view of the balance of savings and investment it is good. This is where the debate comes from. We have an investment resource forming in the country, and we now need to properly use it. Basically this is what the government is working on now under the leadership of the prime minister by the direct order of the president," Belousov said.

Beginning in 2015, a mechanism was established that made it possible to ensure a fairly stable exchange rate amid conditions of a floating ruble, although the ruble's volatility did increase after the transition to a floating exchange rate, he said.

"The key element of this mechanism was, as you know, the fiscal rule, which thanks to simply automatic procedures established at the regulatory level made it possible to balance the ruble's exchange rate within certain ranges. And not by means of [money] issuance - this is very important. The Bank of Russia's options for managing issuance expanded and, accordingly, this was one of the cornerstones of inflation targeting, to which the Bank of Russia transitioned in the past seven years. Now this mechanism has virtually evaporated, stopped working. This is due to the blocking of the Bank of Russia's reserves and the automatic suspension or cancellation of the fiscal rule because of this," Belousov said, explaining the need to discuss a new mechanism.

"In these conditions, of course, we need to rethink these processes, and by 'we' I mean the government and the Bank of Russia, since we are jointly responsible for monetary policy. But any rethinking needs to be done keeping in mind the overall goal - what for? This question - what for, why? - is key," he said.

"In this case I believe that the answer to the main question - why? - is the creation of conditions for development, the creation of conditions for investment and growth of production, in the format of both the domestic market and exports. If you take the current agenda, this is foremost increasing domestic demand. If everyone agrees with this goal, with this objective, then we have room to jointly work out a new mechanism in which a place will also be found for a balanced exchange rate," Belousov said.

Asked whether this means he believes that monetary policy and budget policy should devote more attention to economic growth, he said that monetary policy "is an area of joint responsibility of the government and Bank of Russia."

"First of all, as for priorities, today the importance of the very factor of economic growth has increased dramatically, since the national goals that the president set are an expression of the interests and expectations of society, of people. Solving the issues of poverty, demographics, quality healthcare, quality education, roads, the environment, housing, growth of household incomes, achieving these goals without economic growth is impossible, that's obvious. Economic resources that only growth provides are needed for their realization. Therefore, growth in this sense is the imperative. The question is when, given the restrictions that exist today, we will be able to transition to economic growth and on what scale," Belousov said.

A balanced and optimal exchange rate for the ruble are two different things, he said. "As for the optimal exchange rate, the more or less consensus view is that this is a rate in the range of 70-80 rubles per dollar," Belousov said. "A balanced exchange rate forms based on balances that emerge on financial markets, on the currency market and so on," he added.

Many of these issues "lie in the Bank of Russia's area of responsibility and we are counting on working together with the Central Bank here in the interests of realizing the objectives that I just mentioned," Belousov said.

Asked when the ruble is supposed to return to an optimal exchange rate, he said: "The answer here is very simple - as soon as possible."

"But we understand that there are also constraints here on the part of inflation and restrictions on the part of channels for increasing domestic demand. I don't want to give quantitative estimates and forecasts, so as not to give rise to speculative expectations on the market. Nonetheless, I can say that this problem is being worked on in both the government and the Bank of Russia, and I hope that we manage to solve it," Belousov said.