June 14, 2019 / 2:20 PM / a month ago

Russia's central bank chief calls for stricter rainy-day fund spending

Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov

MOSCOW (Reuters) - Russia’s central bank governor, Elvira Nabiullina, suggested on Friday that spending of the National Wealth Fund should be reconsidered to see whether the cushion is big enough to protect the country from the possible shocks.

Russia is using the fund as a buffer against potential external shocks and to pay out pensions or support some important large projects at home. The spending rules are strict, because the state wants to preserve the fund.

The NWF currently stands at $59 billion and is expected to quadruple to over $200 billion, or 12% of gross domestic product, in 2021. Under the law, Russia may start to use the fund as soon as it reaches 7% of GDP.

Speaking at the press conference on Friday, Nabiullina said the central bank and the government should re-examine whether the 7% threshold is enough to keep Russia protected from possible shocks.

“If the decision will be taken on how to invest (the fund when it exceeds 7% of GDP), then this is essential that investments are set to increase the potential economic growth pace,” Nabiullina said.

“Then there will be less pro-inflationary effect and we will not need to react by monetary policy.” Under its mandate, Russia’s central bank targets inflation, not the economic growth.

Last week, Russian Finance Minister Anton Siluanov said that the ministry will coordinate with the central bank its actions over the fund’s spending, since that may affect the rouble rate.

As one of the projects where the fund could be spent, Siluanov pointed to Gazprom’s new chemical and liquefied natural gas project in the Baltic port of Ust-Luga, which would require equipment purchases of at least 900 billion roubles ($14 billion).

($1 = 64.3125 roubles)

Reporting by Andrey Ostroukh, Katya Golubkova, Elena Fabrichnaya, Dmitry Antonov and Darya Korsunskaya; editing by Larry King

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