March 1, 2016 – President Vladimir Putin said on Tuesday that Russia’s foreign exchange reserves should not be used to help resolve the country’s current economic problems.
“Gold and foreign exchange reserves are for other purposes,” Putin told a meeting of Russian entrepreneurs. “(They) are not for financing current economic problems.”
The central bank held USD 379 billion in foreign exchange and gold as of Feb. 19, up USD 29 billion from lows touched last April, making Russia the only major emerging market with a gain.
While China and Saudi Arabia have spent tens of billions of dollars to shore up their currencies, the central bank in Moscow has gone cold turkey on intervention.
Since blowing more than USD 67 billion in a failed effort to steady the currency at the end of 2014, Russia hasn’t spent a penny to prop up the ruble. In fact, it bought some foreign currency last spring.
“No amount of spending of currency reserves can stabilize the ruble,” Dmitry Tulin, first deputy governor of the central bank, said last month, a few weeks after the currency dropped to new lows. “It’s very easy to fire your whole arsenal quickly, but that would yield only a temporary, Pyrrhic victory.”
That view reflects Putin’s about-face just over a year ago as he decided to husband the Kremlin’s cash at all costs, amid falling oil prices and U.S. and European Union sanctions that largely cut Russia off from western financial markets. The exchange rate, once a top economic priority, would have to be sacrificed as crude plunged. Spending from Russia’s sovereign-wealth funds, the bulk of which count toward the central bank’s holdings, would be conducted in a way that ensured the overall total didn’t drop. There would be no “burning through the reserves,” Putin said when the central bank cut the ruble loose in December 2014.
The economic experiment reflects his conviction that gold and hard currency in the bank are the best guarantee of Russia’s financial independence, according to senior officials who’ve discussed the issue with him. Since he came to power in 2000, Putin has built up reserves from a mere $13 billion and paid off Russia’s debt, which is now one of the lowest among major economies.
Tuesday, Putin brushed off calls to use the central bank funds to help revive the economy, telling a business group, “Gold and currency reserves are created by the central bank for other purposes, not for financing current economic problems.”
Last spring, when the currency staged a brief recovery, the bank moved in to buy $10.5 billion for its reserves, hastily suspending the effort when the ruble resumed its declines. Most of the rest of the gain in reserves comes from banks repaying hard-currency loans from the central bank and fluctuations in exchange rates, the bank said.
But the ruble’s drop has fueled a spike in inflation, reversing years of progress in the central bank’s efforts to rein in price growth. Consumer prices jumped 12.9 percent last year, the biggest calendar-year rise since 2008. The ruble’s drop accounted for the bulk of the increase, given Russia’s dependence on imports of everything from food to industrial equipment, according to the central bank.
Vladimir Putin took part in a meeting of the Federal Security Service (FSB) board to review the results of the Service’s work in 2015 and set its priority tasks for 2016.
Russia says it is close to an international deal with OPEC countries to cap oil production, and that a final decision will be made at a meeting this month.
Saudi Arabia, Russia, Venezuela and Qatar floated an output cap last month with the aim of boosting oil prices, but it was conditional on other producers joining in. Iran has so far resisted, while Russia has agreed.
Novak was quoted by the Tass news agency as saying that the deal mentioned by Putin was agreed to by countries which together accounted for 73 percent of global production. It was not immediately clear which countries he meant.