Siluanov explains how the ruble’s devaluation can strengthen the economy

Finance Minister Anton Siluanov said that the ministry is considering a foreign exchange market intervention to stabilize the ruble.

Finance Minister Anton Siluanov. Evgeny Biyatov / RIA Novosti

This year’s budget policy plan is to channel all revenues into spending, the official emphasized adding that the government has already approved more spending than there will be revenues.

The Finance Minister’s plan to channel “all revenues into spending” must mean the country will – and should – use any income in excess of this year’s targets to support and develop the national economy, Artyom Deyev, head of analytics at AMarkets, explained to Invest Foresight. Domestic demand is stagnating, and exports are hurdled, which suggests the government should focus on domestic consumption instead. Household incomes need to be stimulated to boost demand for Russian goods, support Russian companies’ turnovers and profits, and as a result, increase tax inflow to the federal coffers.

The very fact that the finance minister is considering currency interventions (i.e. foreign currency purchases to replenish reserves) is also a consequence of the strengthening of the ruble, the expert continues.

“The dollar hovering at 51-53 rubles is a serious problem because exporters’ revenues remain low, and so are the state’s income. The dollar’s value needs to be raised, and this is often done by the central bank through purchasing foreign currency,” the analyst notes. “A stable ruble means the government is in a position to do so now. But there is a problem with the sanctions – dollars and euros cannot be purchased directly from the United States or Europe. We will have to trade through third countries.”

However, the dollar will probably rise above 70 rubles again anyway. It is a necessary condition for balancing the budget and smooth functioning of the Russian economy, Artyom Deyev sums up.

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