Rescinding mandatory forex sale by exporters would not significantly affect exchange rate - Russian Central Bank

MOSCOW. Feb 28 (Interfax) - Not extending the presidential decree on the mandatory sale of forex earnings on the part of the largest exporters would not become a significant factor in the subsequent dynamics of the ruble exchange rate, according to those participating in the discussion of the Central Bank of Russia (CBR) on the key rate.

The CBR on Tuesday for the first time published a summary of the discussion on the key rate during the "week of silence" and at the meeting of the regulator's board of directors.

Russian President Vladimir Putin in mid-October signed the decree "On implementing the mandatory sale of proceeds in foreign currency received by individual Russian exporters under foreign trade agreements (contracts)". The list includes 43 groups of companies "related to the sectors of the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and forestry industries, and grain farming." Under the government-approved procedure, companies included in the list are required, as of October 16, 2023, to credit to their accounts in Russian banks, within 60 days from the date of receipt of funds, at least 80% of all foreign currency received in accordance with the terms of their export contracts. They are also required to sell on the domestic market within two weeks no less than 90% of the credited forex earnings, but no less than 50% of the funds received in accordance with each export contract, within no more than 30 days from the date of receipt.

The government has implemented the requirement until April 30, 2024. The government at the end of January announced that it would propose extending the measures stipulated in the decree until the end of the year. The Central Bank has opposed extending the measures.

"The participants in the discussion also confirmed the opinion that if the decree on the mandatory sale of foreign currency earnings by the largest exporters is not extended, then this would be a significant factor in the subsequent dynamics of the exchange rate," according to the summary.

The participants believe that changes in the physical volumes of exports, as well as prices of non-oil and gas exports, the negative impact of which could not be compensated by the fiscal rule mechanism, remain a significant source of risk for the exchange rate. The participants paid attention to the consequences of additional difficulties in external payments. It was noted that if difficulties affect both exports and imports, then there might not be a pronounced impact on the exchange rate.

The discussion participants noted that the dynamics of oil prices are still affecting the forex earnings of Russian companies with a lag. Sales of foreign currency on the market have declined over the past period following a decline in the value of exports. Meantime, the share of foreign currency earnings sold has remained consistently high.

Operations regarding Russian companies paying out dividends provided additional support for the ruble in November-December 2023. Meantime, importers reduced demand for foreign products slightly, which could partly be owing to expectations of a decline in consumer demand because of tight monetary conditions.

"Consequently, the tight monetary policy continues to contribute to cooling demand for imports in ruble terms, which contributes to more stable dynamics of the ruble exchange rate. High ruble interest rates also support demand for ruble financial instruments as a store of value," according to the summary.