Page 65 - RusRPTAug23

the export price of oil. As a result, exchange rate fluctuations do not impact the budget.
Furthermore, the belief that a falling exchange rate boosts revenues is undermined when the government relies on market borrowing to finance its expenditures. Last year, the Finance Ministry issued bonds worth 3.3 trillion rubles (around $50bn), and similar plans are in place for this year. The collapse of the ruble leads to faster inflation and higher interest rates, which makes borrowing more expensive.
Exporters who receive foreign currency but spend in rubles can benefit from a falling ruble. However, a portion of their profits is subject to taxation. Exporters who choose to retain foreign earnings without repatriating them to Russia could potentially stabilise the exchange rate. In past crises, there have been indications that the Kremlin has urgently requested exporters to purchase rubles.
It is unlikely that the Central Bank will intervene to support the ruble. Since 2014, the regulator has focused on fighting inflation through interest rate adjustments. Central Bank officials repeatedly emphasize that exchange rates are determined by supply and demand, and they are accepting of any ruble rate. This sentiment was reiterated recently.
In theory, the Central Bank could intervene in currency markets if it perceives a threat to the stability of the financial system. For example, after the invasion of Ukraine last year, the Central Bank sold 100bn rubles' worth of foreign currency. However, the regulator currently sees no imminent threat to the system's stability, indicating that intervention is unlikely—at least for now.
The latest figures from the Central Bank indicate that households in Russia are continuing to deposit funds abroad or keep them in cash, contributing to additional pressure on the ruble. This trend has persisted through May and June, with little indication of a reversal.
Elvira Nabiullina, the head of the Central Bank, maintains that the bank's monetary policy remains effective. Despite the ruble's depreciation, the policy, which includes a floating exchange rate and inflation targeting, has not been altered.
The State Statistics Service (Rosstat) has released GDP data for the first quarter of the year, showing that state orders accounted for a historic high of 24.7% of GDP. This is unsurprising considering the significant role of government spending. However, due to the absence of trade data publication, it is difficult to accurately assess real imports and exports.
Inflation in Russia has seen an increase for the second consecutive week. The consumer price index for the period of June 27 to July 3 rose by 0.13%
65 RUSSIA Country Report August 2023 www.intellinews.com