Budget rule and FX interventions

RUSSIA ECONOMICS - Report 15 Apr 2019 by Marcel Salikhov

​Since November 2014 CBR abandoned its mechanism of regular FX interventions and RUB technically became free floating currency. But de facto CBR/Government have maintained instruments to influence local FX market besides traditional interest rate policy.

Current operations of CBR on FX market are linked to the budget rule implementation. Basically existing budget rule in Russia sets the cut-off for oil price (so called ‘base oil price’). The base oil price was set at $40/barrel of Ural crude in 2017. But it can be indexed by 2% per annum (roughly US inflation). So 2019 base oil price is set at $41.6/barrel ($40*102%*102%).

Oil & gas revenues at the level of the base oil price go directly to the federal budget and can be used for current expenditures. If current oil price is higher than ‘base oil price’ then these extra revenues go to National Welfare Fund (NWF).

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