Long-Term Impact of Capital Controls May Weaken Rouble, Says Reuters

Moscow – Capital controls imposed on certain Russian exporters last month may have unintended long-term consequences, potentially resulting in a weaker and more volatile rouble, according to a report by the Russian central bank released on Tuesday.

These measures, which will remain in effect for six months, mandate that 43 unnamed exporting firms deposit at least 80% of their foreign currency earnings with Russian banks and sell a minimum of 90% of those proceeds on the domestic market within two weeks.

Since the announcement of these controls, the rouble has appreciated from over 100 to approximately 92.3 to the dollar as of Tuesday afternoon. This strengthening has been further aided by the central bank’s recent decision to raise its main interest rate to 15%, a move that exceeded market expectations.

The central bank also projected in its report that annual inflation would begin to decline next spring, due to increased savings among Russians and the impact of higher interest rates.

Current estimates suggest that annual inflation in Russia is expected to reach 7.25% in the fourth quarter of 2023, a rise from 6.00% in the third quarter, according to the bank’s evaluation.

Additionally, Russia’s gross domestic product (GDP) is forecasted to experience year-on-year growth of 1.5% in the final quarter of 2023, a slowdown from the 5.1% growth observed in the previous quarter.