FX restrictions are able to smooth out volatility in the short term, but could create additional risks - CBR

MOSCOW. Oct 13 (Interfax) - The Central Bank of Russia (CBR) still believes that the expansion of currency restrictions, although short-term, allows for reducing exchange rate volatility, but carries additional risks.

"Perhaps, some of the measures related to the restriction of capital movement are able to some extent to smooth out short-term exchange rate volatility. But it should be remembered that at the same time they may complicate foreign economic activity. Such measures in normal conditions are burdensome for business, and now they may potentially create additional risks for uninterrupted import supplies, speed of settlements, etc," CBR Deputy Governor Alexei Zabotkin told Interfax in an interview.

The Russian authorities on Wednesday evening announced the introduction of a six-month obligation for a number of major exporters to sell FX proceeds on the domestic market in order to stabilize the ruble exchange rate. Russian President Vladimir Putin signed the decree "On the implementation of the mandatory sale of foreign currency proceeds received by certain Russian exporters under foreign trade agreements (contracts)". The list includes 43 groups of companies "belonging to the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and timber industries, and grain farming".

"The decree introducing the mandatory sale of foreign currency proceeds, signed this week, applies to a limited range of companies and is temporary in nature. This will minimize side effects and will give an opportunity to assess the effectiveness of this measure after the expiration of the term," Zabotkin said.

He emphasized that the stability of the exchange rate is determined by fundamental factors - export opportunities and how the demand for imports relates to them, as well as the attractiveness of the ruble as a savings instrument.