The mechanism that allows the floating exchange rate to ensure its sufficient stability in the current conditions almost does not work, the government and the Central Bank need to rethink the economic mechanisms of recent years, prioritizing growth, for which the optimal ruble exchange rate is also important, said in an interview with “Interfax” First Deputy Prime Minister of the Russian Federation Andrei Belousov on the platform of the St. Petersburg International Economic Forum. The topic of the over-valued ruble was one of the main ones at the macroeconomic sessions of SPIEF-2022.

According to Belousov, the optimal ruble exchange rate for the economy is estimated in the consensus opinion at 70-80 rubles, and it is necessary to return to it as soon as possible.

“Such a discussion is already underway both at the expert level and in the authorities,” he said when asked whether the discussion about revising the approach to monetary policy, including such a radical step as a switch to targeting the ruble rather than inflation, has a right to exist.

“And it is connected with the realization of a simple contradiction. We really now have a current account surplus. And while earlier this current account balance was balanced by capital outflows, today capital outflows are limited. Is this good or bad? From the point of view of the current policy of floating ruble – it is bad, because the ruble is overstrengthening, but from the point of view of the balance of savings and investment – it is good. Hence the debate. We have an investment resource in the country, and we need to use it competently. In fact, the government under the leadership of the Chairman on the direct order of the President is working on it now,” said First Deputy Prime Minister.

Since 2015, a mechanism was formed, which allowed to ensure sufficient stability of the floating ruble, although the volatility of the ruble has increased after the transition to a floating exchange rate, Belousov noted. “The key element of this mechanism was, as you know, the budget rule, which by virtue of simply automatic procedures established at the regulatory level, allowed to balance the ruble exchange rate in certain ranges. And it was not by emission method – this is very important. The Bank of Russia’s ability to manage the emission was expanding, and, accordingly, it was one of the cornerstones of inflation targeting, which the Bank of Russia moved to in the last seven years. Today, this mechanism has practically evaporated and stopped working. This is due to the blocking of the Bank of Russia’s reserves and the automatic suspension or abolition of the budget rule,” Belousov explained the expediency of discussing the development of a new mechanism.

“In these circumstances, of course, we need (we – I mean both the government and the Bank of Russia, since we are jointly responsible for monetary policy) to rethink these processes. But any rethinking should be done with a common goal in mind – for what? This question – for what, why? – is the key question. In this case, I believe that the answer to the main question – why? – is to create conditions for development, to create conditions for investment and production growth in the format of both the domestic market and exports. If we take the current agenda, it is, first of all, to increase domestic demand. If everyone agrees with this goal, with this task, then we have a space for joint development of a new mechanism, in which there will be a place for the equilibrium rate,” Belousov said.

Commenting on the question – whether this means that the DCP and budget policy, in his opinion, should pay more attention to economic growth, First Deputy Prime Minister noted that monetary policy “is an area of joint responsibility of the government and the Bank of Russia.” “Secondly, as for priorities – today the importance of the very factor of economic growth has increased dramatically, because the national goals that the president has set are an expression of the interests and expectations of society, of people. Solving the issues of poverty, demography, quality healthcare, quality education, roads, ecology, housing, growth of citizens’ incomes – it is impossible to achieve these goals without economic growth, it is obvious. Their realization requires economic resources, which only growth provides. Therefore, growth in this sense is an imperative. The question is when, given the limitations that exist today, we will be able to move to economic growth and on what scale,” Belousov said.

The equilibrium and optimal ruble exchange rate are different concepts, he emphasized.

“As for the optimal rate, the more or less consensus opinion is that it is a rate in the range of 70-80 rubles per dollar,” he said.

“The equilibrium rate is formed on the basis of balances that arise on financial markets, on the currency market, etc.,” Belousov added.

“These are issues, many of them lie in the field of responsibility of the Bank of Russia, and we here count on joint work with the Central Bank in the interests of realizing the tasks I just mentioned,” he said.

Answering the question about the timeframe in which the ruble should return to the optimal rate, Belousov said, “The answer here is very simple – as soon as possible.”

“But we realize that here there are both limitations on the part of inflation and limitations on the part of channels for increasing domestic demand. I do not want to give quantitative estimates and forecasts so as not to generate speculative expectations in the market. Nevertheless, I can say that both the government and the Bank of Russia are working on this task, and I hope that we will be able to solve it,” concluded First Deputy Prime Minister.