President Vladimir Putin is to discuss ramping up currency controls with Russian policymakers on Wednesday after an extraordinary 3.5 percentage point rate rise failed to halt the rouble’s slide, said two people familiar with the matter.
Putin will hear proposals from Russia’s finance ministry to require exporters to convert some of their foreign currency earnings, most of which are currently held abroad, into roubles, the people said.
The finance ministry’s proposals, seen by the Financial Times, would require exporters to sell up to 80 per cent of their foreign currency revenue within 90 days after delivery and ban companies that refused to comply from receiving government subsidies.
Other proposed measures include a ban on paying out dividends and extending loans abroad, even to countries deemed “friendly” by Russia; cancelling import subsidies; limiting currency swaps; and reducing the amount of foreign currency exporters are allowed to take out of Russia.
The move, which would be the first time Russia has increased currency controls since the early weeks of Putin’s invasion of Ukraine last year, indicates growing concern in the Kremlin about the effect the war is having on the country’s economy.
Finance minister Anton Siluanov was the sole economic official who spoke up in favour of currency controls at a government meeting on Monday, according to three people familiar with the matter.
But Putin is to hear out policymakers’ proposals to bolster the rouble after the central bank’s extraordinary rate rise only had a moderate effect on exchange rates.
“These matters aren’t decided in any way other than with him,” said one of the people familiar with the matter.
Currency controls are a sensitive topic for central bank governor Elvira Nabiullina who had previously told friends she would resign if they were implemented — only to stay in her post after the invasion and introduce them last spring.
But the pressure on the rouble, which briefly weakened below the important barrier of 100 to the dollar on Monday, has left policymakers with few other options, economists say.
As the war drags on, ballooning deficits resulting from increased military spending, a drop in export revenues and a growing reliance on imports have all combined to weaken the rouble.
The slide has prompted open disagreements among Russian economic policymakers.
On Monday, Maxim Oreshkin, Putin’s economic policy adviser, published an article that claimed “a strong rouble is in the interests of the Russian economy” and blamed the central bank for its fall.
Oreshkin wrote that the central bank’s year-long easing cycle had fuelled a borrowing bonanza that overheated Russia’s economy and said it had “all the necessary instruments” to reverse the drop.
But economists say the central bank has limited capacity to boost the rouble after western sanctions froze about $300bn of its foreign reserves, leaving it essentially unable to sell dollars and euros.
Elina Ribakova, director of the international programme at the Kyiv School of Economics, said: “There are two levers that Russian authorities can use to support the rouble. The first one is to avoid the [oil] price cap [imposed by western countries] more effectively and increase export revenues to enhance the current account surplus. The second one is capital controls.”
Ribakova said the currency’s slide should not lead to complacency that western measures aimed at choking off Russia’s funding sources were succeeding. “It’s necessary to pay even closer attention to attempts to circumvent energy sanctions,” she said.
After the central bank raising rates on Tuesday, a move it said was necessary to tame inflation, the bank said the rouble had also been hit by a drop in export volumes and an increase in government borrowing that had created more demand for imports.
The Kremlin and the finance ministry did not immediately respond to a request for comment. Reuters first reported on the details of the proposals.