Russia needs export rethink but no capital controls, central bank chief says

Russia needs to rethink the contours of its export-dependent economy to ensure that industry works for the domestic market but most capital controls should be scrapped, Central Bank Governor Elvira Nabiullina said on Thursday.

Nabiullina, speaking at Russia’s flagship annual economic conference in St. Petersburg, said that a “substantial part” of Russian industry should start working for the domestic market, rather than rely on exports for revenue.

She said most of Russia’s capital controls should be scrapped and that there would be no ban on Russians holding bank accounts in U.S. dollars or other foreign currencies.

“We have had a layering of currency restrictions,” Nabiullina said. “My opinion is that they should be taken down, most of them anyway.”

Russia introduced strict controls on currency operations in response to Western sanctions on Russia which included the freezing of around $300 billion of central bank reserves.

President Vladimir Putin has said that Russia will thrive despite the West’s imposition of the most severe sanctions in modern history but that it will have to reorient the foundations of Russia’s $1.8 trillion economy.

Nabiullina cautioned that there were fears that the loss of access to technologies would undermine the Russian economy.

She said Moscow needed to look at private initiatives to secure technological development and prevent a slide towards a Soviet-style situation in which Russia would fall behind its competitors.

The recent rise of the rouble to multi-year highs against the U.S. dollar has prompted calls from the Russian government for a weaker rouble.

Deputy Prime Minister Andrei Belousov said the rouble was overvalued and industry would be more comfortable if it fell to between 70 to 80 against the U.S. dollar from the current 57.

But in St Petersburg, Nabiullina defended the bank’s rouble strategy, telling reporters that the rouble’s rate should remain floating.

Nabiullina said spending from the National Wealth Fund (NWF), where Russia previously saved up extra revenues from oil and gas, was not the same as printing money.

Current spending from the fund, she said, was the “return of the funds which were accumulated in the past years.”

“This is not a printing of new uncollaterized money from the air,” she said.

Nabiullina added that the pace of price rises, which surged in March following the imposition of Western sanctions, had fallen faster than the central bank’s initial expectations, expecting the year-end inflation close to 14%.