Russian govt, cenbank disagree publicly over extending capital controls

Russian authorities publicly disputed the efficacy of capital controls on Tuesday, with the central bank swiftly opposing the government's proposal to extend a requirement forcing exporters to convert foreign currency revenues. The government argued that the measures, ordered by President Vladimir Putin in an October decree, have been effective, and said they should be extended until the end of the year.

Russian authorities publicly disputed the efficacy of capital controls on Tuesday, with the central bank swiftly opposing the government's proposal to extend a requirement forcing exporters to convert foreign currency revenues.

The government argued that the measures, ordered by President Vladimir Putin in an October decree, have been effective, and said they should be extended until the end of the year. They are currently set to expire in April. But the central bank, which previously warned that currency controls were inefficient and would ultimately be circumvented, said it saw no solid grounds for their extension.

The controls were introduced as the rouble tumbled past the 100 mark against the dollar and authorities sought to wrest back control of the FX market. It was trading near 88 to the dollar on Tuesday. "Taking into account the current results in accordance with the president's decree, the measures will be proposed for extension until the end of 2024," the government said on Telegram.

The decree requires dozens of undisclosed exporting firms to deposit no less than 80% of foreign currency earned with Russian banks, and then sell at least 90% of those proceeds on the domestic market within two weeks. "It can be noted today that, according to the available data, exporters have generally observed the presidential decree's requirements," First Deputy Prime Minister Andrei Belousov said.

"This has made it possible to cover the deficit of foreign currency needed by importers to maintain supplies of products to our country." But the central bank said high interest rates, which it hiked to 16% in December, and strong export revenues in summer 2023 were more impactful.

"The Bank of Russia believes that the impact of this measure on the FX market in the past months was moderate in comparison with the impact on the exchange rate of monetary policy, the level of the key rate," the central bank said. "The growth in export cost volumes, which affect the FX market with a lag, associated with the timing of conducting foreign trade settlements, also made a significant contribution."