VTB head proposes restrictions on foreign transfers in rubles to combat depreciation

MOSCOW. Sept 11 (Interfax) - Imposing limits on transferring funds abroad in rubles, possibly at the same level as the foreign currency restriction of $1 million, could help reduce volatility on Russia's forex market, the president and CEO of state bank VTB , Andrei Kostin said.

"We need to understand that we're not living in peacetime. We need some sort of additional actions on top of what we're accustomed to doing. For example, loopholes remain. Say you decided to transfer money abroad - restrictions of $1 million per month have been imposed [on forex transfers], but for rubles [you can] transfer as much as you want. What happens next? You transfer a billion to Armenia and it is immediately exchanged back into dollars. This is the possibility that must be closed," Kostin said in an interview with RBC ahead of the Eastern Economic Forum (EEF).

Transfers of funds in rubles could be capped at 100 million rubles, he said.

The Central Bank of Russia (CBR) is probably considering this option alone with others, Kostin said. "It seems to me that this will depend on the development of the situation with the ruble," he said.

There are also a number of other measures that could reduce volatility on the forex market, Kostin said. For example, the government has proposed to tighten currency controls.

Restrictions on forex transfers abroad are in effect until September 30, 2023. Russian citizens and individuals who are residents of "friendly" countries can transfer up to $1 million (or the equivalent in a different foreign currency) to any foreign bank account per month.

The CBR increasing sales of yuan as part of the investment of National Welfare Fund (NWF) resources will also help stabilize the forex market, Kostin said. The CBR plans to increase forex sales to 21.4 billion rubles per day in the period from September 14 to 22 from 2.3 billion rubles previously and sell 150 billion rubles worth in the period.

"First the CBR stopped buying forex under the fiscal rule and now it will sell yuan as the NWF is spent and plus it is making an intervention of 150 billion rubles. The CBR must now give speculators a rap on the knuckles, because the market is playing against the ruble," Kostin said.

He recalled that the CBR also recently raised its key interest rate and "will possibly raise [it] again." These measures should affect the ruble's exchange rate, but if they do not "I'm sure other measures will be found," Kostin said. The CBR hiked its key rate by 350 basis points to 12% on August 15.

Kostin does not agree with former Otkritie Bank head Mikhail Zadornov that one of the key factors in the ruble's depreciation is the large amount of "hung up" rupees for Russian exports to India.

"First of all, by our estimates a relatively small portion of rupees is hung up. And secondly, we and Sber and others are now doing rupee-ruble conversion," Kostin said.

"Trade transactions are being carried out in yuan. But there is also direct rupee-ruble conversion. We usually use intermediaries from India, from the Emirates. A certain commission is charged there, a discount, but in principle the amounts are already large. We can already each [bank] digest sums of hundreds of billions of rubles per year. Therefore, the matter is being resolved, this is not a factor of influence [on the ruble's exchange rate] today. Many of our clients do not seem to have any rupees left," Kostin said.

He also said that a substantial portion of trade between Russia and India is still done in "unfriendly" currencies. In order to completely switch bilateral settlements to national currencies, more effort will be needed to solve this problem, Kostin said.