Moscow - President Vladimir Putin on Wednesday dismissed growing speculation about an imminent currency devaluation as the Russian ruble hit five-year lows amid growing capital outflows and diminishing central bank support.
The Russian leader said a day after a meeting with Central Bank chief Elvira Nabiullina that the government welcomed greater ruble flexibility that could reinvigorate sluggish growth.
The Central Bank had announced earlier this month that it was withdrawing “targeted” daily currency trading interventions as it gradually moves toward a fully floating exchange rate by the start of next year.
“The Central Bank is now only partially involved in currency regulation,” Putin said during a meeting with university students in Moscow.
“And the freer (the exchange rate) the Russian currency, the better - in the long run - it will be overall because this will force the economy to be more effective.”
Putin added that Nabiullina “did not say anything at all” about a government-orchestrated currency devaluation that could help Russian industry by making the country's goods more competitive abroad.
He spoke only moments before Industry and Trade Minister Denis Manturov told parliament that Russia's industrial production rate “managed to reach 2012 levels” after being in decline for most of the year.
The Russian ruble has hit five-year lows this week against the Central Bank's foreign currency basket of dollars and euros - a politically worrying trend for the Kremlin because of the accompanying rise in the cost of living.
It was trading at 33.91 against the greenback and 45.96 against the single European currency on Wednesday - rates not seen since the worst months of Russia's 2008-2009 financial crisis.
Economists attributed the latest decline to the Central Bank's decision this month to stop spending up to $60 million (44 million euros) a day on efforts to keep the ruble within a predetermined trading range.
The Central Bank still reserves the right to spend between $200
million and $400 million a day on “non-targeted” interventions that kick in when the ruble falls outside the defined trading band's boundaries.
Traders interpreted the decision as a sign that the Central Bank was partially giving up its expensive defence of the Russian currency in a weak economic climate and immediately began buying up dollars and euros.
But economists also attributed the ruble's weakness to investment capital outflows that amounted to three percent of gross domestic product last year.
Russia external position also deteriorated last year due to a falling trade surplus and meagre foreign investment.
The London-based Capital Economics consultancy noted that Russia's current account surplus last year was unable to cover capital outflows for the first time for five years.
One “consequence of Russia's deteriorating external position is that the ruble is likely to continue to weaken,” Capital Economics observed in a research note. - Sapa-AFP