But the rubles in the economy have at some point reached 2 trillion more because the notes did not stay in the treasury, but went to finance the federal budget deficit. In practice, the money took the form of payments to public procurement, pensions, public sector wages, etc.
The Central Bank’s primary task right now is to keep inflation low. This has been stated quite clearly. But adding 2 trillion rubles to float freely on the market would do the opposite. So, Nechaev says, the Central Bank began “dramatically reducing lending to commercial banks. Basically it affected the most widely used forms of credit – the “weekly repo” operations.”
In the words of the Central Bank chairwoman, the Bank of Russia has consistently reduced the provision of liquidity to the banks in this form. The volume of repo transactions fell from 2.69 trillion rubles in late 2014 to 840 billion rubles at the beginning of 2016 and to 490 billion rubles for mid-February.
But, he says:
Obviously the currency acquired by the Central Bank will eventually be given in some form to the Russian banks and large companies for the settlement of Western loans under the closing capital of Western markets due to sanctions.
The Central Bank is conducting “this elaborate scheme”, Nechaev alleges, for two reasons:
- “…the sale of such significant volumes of currency strengthens the exchange rate, and therefore the Ministry of Finance will receive less of the rubles badly needed to carry out budgetary commitments.”
- “…in buying currency, the “irresponsible” Russian bankers and businessmen could get it out of Russia, where capital is inconvenient.”
And so the Ministry of Finance and the Central Bank have made everything comfortably, relaxed and home-like.