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. Last Updated: 07/27/2016

Putin Urges Scrutiny of Strong Ruble

Itar-TassPutin addressing the Cabinet on Monday as presidential administration chief of staff Sergei Sobyanin looks on.
President Vladimir Putin told his government Monday to pay close attention to the impact of the ruble's strengthening exchange rate on the country's economy, news agencies reported.

"It is necessary to pay particular attention to this so as not to undermine the positive dynamics we see in manufacturing industries," Interfax quoted Putin as telling senior Cabinet officials.

Putin's comments repeated concerns he expressed last year that the strengthening of the ruble had become "critical" for the country's economy.

His comments reflected Kremlin skepticism towards the Central Bank's policy of allowing gradual nominal appreciation to contain inflation.

The ruble rose by over 4 percent last year in nominal terms against the dollar and euro currency basket targeted by the Central Bank, and the monetary authorities allowed another rise of 0.7 percent early this year. Advocates of a stronger ruble say the policy has succeeded in curbing inflation, now firmly in single figures and which, in month-on-month terms, fell to 0.6 percent in March.

That has in turn curbed appreciation of the ruble's real effective exchange rate -- a measure of international competitiveness that takes into account differences in inflation between Russia and its trading partners.

Central Bank chairman Sergei Ignatyev said Friday the ruble's real effective appreciation had slowed in the first quarter of this year to 2.6 percent from 6.2 percent in the same period a year earlier. Industrial output has, meanwhile, outperformed expectations, rising by 8.7 percent year-on-year in February.

The Central Bank hopes in the medium term to move away from targeting the exchange rate to focusing on inflation, but as long as Russia runs a big current account surplus and sucks in capital inflows such a move will be difficult, analysts say.