Joint Statement by the Government of the Russian Federation
and the Central Bank of the Russian Federation

JOINT STATEMENT

by the Government of the Russian Federation and the Central Bank of the Russian Federation

On the Exchange Rate Policy

August 17, 1998

The period that has passed since the announcement by the Government of the Russian Federation and the Bank of Russia of the medium-term targets of the exchange rate policy for the current period has seen a significant deterioration of the external economic situation for Russia. The main factors behind that were the international financial crisis, which broke out in some countries of South East Asia and subsequently evolved into a global crisis, the general depression of all emerging markets, including the Russian financial market, and the fall in the world prices of major items of Russian exports, especially for oil, which had a negative effect on the country’s foreign trade balance.

At the same time, the state of the federal budget has worsened considerably and confidence in Russian government securities declined, causing an outflow of foreign capital from Russia and reduction in the country’s international reserves. In this situation changes in the exchange rate policy pursued in the Russian Federation became inevitable.

To protect the national economic interests, prevent the reduction in foreign exchange reserves and eliminate the imbalances accumulated in the foreign economic sphere, the Government of the Russian Federation and the Bank of Russia announce a review of the exchange rate policy parameters and methods of setting the exchange rate of the ruble. Under the circumstances, it is not expedient to retain the rigid daily limits on ruble exchange rate fluctuations in the form of the buying and selling rates of the US dollars announced by the Bank of Russia in the interbank foreign currency market. The procedure for setting the official exchange rate of the ruble by the Bank of Russia will change accordingly: it will be fixed on the basis of the results of daily operations in the exchange and over-the-counter sectors of the domestic foreign exchange market.

At the same time, the Government of the Russian Federation and the Bank of Russia undertake to maintain by their budget, monetary and foreign exchange policy such conditions in the domestic foreign exchange market as may be necessary to keep the exchange rate dynamics predictable. As before, organisations and private individuals will be ensured the possibility of buying and selling foreign currency without restrictions in compliance with the applicable legislation and using the market exchange rate.

The Government of the Russian Federation and the Bank of Russia believe that given legislative support, the implementation of the Government’s package of economic stabilisation measures and the available international reserves ensure the possibility of maintaining the ruble exchange rate until the end of the year within the band of 6 to 9.5 rubles to the US dollar.

The implementation of the exchange rate policy under the new conditions will rest upon a balanced budget policy and a fairly tight monetary policy. A key role will be played by a flexible interest rate policy designed to dampen inflationary expectations and increase the attractiveness of investment into ruble-denominated assets while maintaining the country’s foreign exchange reserves at an adequate level. The setting of the official ruble exchange rate on the basis of its market quotations will make it possible to counter speculative attacks on the Russian ruble, which lead to unjustified spending of the Bank of Russia foreign exchange reserves.

At the same time, the situation requires the Government of the Russian Federation and the Bank of Russia to impose the necessary restrictions on nonresidents’ foreign exchange operations of capital nature in order to protect the Russian market from the destabilising effects of global movements of speculative short-term capital. At the same time the Government of the Russian Federation and the Bank of Russia reaffirm the international obligations they assumed in 1996 not to impose restrictions on ruble convertibility in the balance-of-payments current account operations.

Chairman of the Government
of the Russian Federation S. V. Kiriyenko

Bank of Russia Chairman S. K. Dubinin