Russia won’t tighten capital controls for now – Vedomosti

Exporters have reportedly agreed to boost sales of their foreign currency revenues

The Russian authorities will refrain from introducing stricter capital controls to stem the depreciation of the ruble in exchange for concessions from exporters, the news outlet Vedomosti reported on Thursday, citing sources close to the discussions.

According to the report, President Vladimir Putin discussed the possibility of stricter rules on sales of foreign-currency proceeds at a meeting with Bank of Russia Governor Elvira Nabiullina, Finance Minister Anton Siluanov, and other senior officials.

During the discussion, it was announced that the Russian Cabinet of Ministers had struck an informal deal with the country’s leading exporters whereby the latter pledged to increase the sale of their forex earnings. The authorities therefore decided to hold off on tightening capital controls and opted instead to monitor exporters for the time being.

The sources warned, however, that mandatory sales of export proceeds will become inevitable if exporters don’t fulfill their promises.

The discussions came amid the recent slide in the Russian ruble against major Western currencies. The ruble saw its biggest decline in 16 months on Monday, having weakened to 101 against the dollar and 111 to the euro.

While the Russian currency has been recovering after the central bank raised the key interest rate to 12%, analysts have pointed to the fact that one of the initial reasons for its depreciation was the low volume of foreign exchange revenue sales by exporters.

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The proceeds from these sales have been much lower this year than in 2022, according to the Bank of Russia. For instance, in July they amounted to $6.9 billion, down from $16.8 billion in the same month last year. According to Vedomosti’s sources, while the oil sector is forced to sell most of its export revenues, since oil companies pay the equivalent of half of their revenues in tax, fertilizer exporters have been ignoring the need to repatriate their proceeds.

In the spring of 2022, strict controls on capital movement were introduced after the ruble collapsed under Western sanctions. The measures included the mandatory sale of 80% of forex earnings. However, as the economy adjusted to operating under sanctions and the ruble recovered, the Bank of Russia later eased the requirement to 50% of forex proceeds and then scrapped it altogether. Some reports claimed this week that if the ruble’s position does not improve by Friday, exporters may be forced to return up to 90% of their forex revenues to Russia.

The ruble was trading at around 93 to the dollar and 101 to the euro at 1:30pm local time in Moscow on Thursday.

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