FX.co ★ Kremlin not interested in strong ruble

Russia’s President Vladimir Putin voiced concern over the ruble’s strength that policymakers considered to be a message for the government. According to the official stance, the government is not interested in the strong currency. The Russian nationals have raised their financial awareness and now realize why the public budget and government benefit from the weaker currency. Natural resources, in particular crude oil, are sold abroad for US dollars. A part of fiscal revenues in dollars is converted into rubles which are spent to pay salaries and wages. So, the benefit for the government is obvious. Steady budget revenues outweigh public spending, which is even contracted because the same amount in dollars can be spent to buy a twice bigger amount of rubles.

In 2014, the ruble lost nearly half of its value versus the US dollar amid low oil prices and Western economic sanctions imposed on Russia. However, despite global headwinds Russia’s currency started to “over-appreciate” in the past few weeks that is working against domestic exporters. Therefore, Vladimir Putin instructed the government to develop a package of measures to reduce the risk of the ruble’s appreciation. The Russian leader highlighted that the overvalued ruble poses a threat to most sectors of the domestic economy. Some sectors will not be able to overcome the crisis on the back of the stronger ruble. So the president nudges the government to go back to planning the state budget for a three-year term.