SHRI DHARMASTHALA MANJUNATHESHWARA

INSTITUTE FOR MANAGEMENT DEVELOPMENT

Contemporary Issues in International Business and Finance

Report Submission on

Russian Ruble

Submitted to

Dr. Julian E. Gaspar

Executive Director
Centre for International Business Studies
Clinical Professor of International Finance
Texas A&M University, Texas

Submitted by
Roydon Dsouza 17081
Saurabh Singh 17084
Shreya L 17086
Vishwas C 17095

Batch: 2017-2019
Contents
Country Analysis (Russia) ............................................................................................................................. 3
Economic Overview of Russia ................................................................................................................... 3
Russia’s Monetary Policy .......................................................................................................................... 6
Russian Foreign Exchange Market ............................................................................................................... 8
Balance of payment.................................................................................................................................... 13
Status in the 2017 of Russian balance of payment
Current account ...................................................................................................................................... 13
The financial account .............................................................................................................................. 13
Key balance of payments components ................................................................................................... 14
Status of Russian bop in the year 2018................................................................................................... 14
Forecasting the Russian BOP .................................................................................................................. 15
Russia’s balance of trade and the global oil price index in 2006–2018 .................................................. 16
Top 10 international trade partners of Russians...................................................................................... 18
Top exports and imports of Russian .......................................................................................................... 19
Exports: ................................................................................................................................................... 19
Imports: ................................................................................................................................................... 19
Russia and Indian relationship in trade ..................................................................................................... 20
Conclusion: ................................................................................................................................................. 23
Balance of payment: ............................................................................................................................... 23
Services: .................................................................................................................................................. 23
Exchange rate:......................................................................................................................................... 24
Quantitative tightening:.......................................................................................................................... 24
Country Analysis (Russia)
Russia - the largest country on earth - emerged from a decade of post-Soviet economic and
political turmoil to seek to reassert itself as a world power.

Income from vast natural resources, above all oil and gas, helped Russia overcome the economic
collapse of 1998, but the oil price slump of 2014 ended the long run of prosperity.

The state-run gas monopoly Gazprom still supplies a large share of Europe's needs.

Vladimir Putin - Russia's dominant political figure since 2000 - has enhanced his control over
state institutions and the media - a process supplemented more recently by an emphasis on fierce
nationalism and hostility to the West.

Economic Overview of Russia

Following the collapse of the Soviet Union, the first decade of transition from a centrally-
planned economy to market economy was disastrous for Russia: nominal gross domestic product
(GDP) fell from USD 516 billion in 1990 to USD 196 billion in 1999, which represented a
plunge of over 60%. In an attempt to address the economic turmoil and follow the
recommendations from the IMF, the Soviet government began to privatize many Russian
industries during the 1990s. Important exceptions were, however the energy and defense sectors.

The devaluation of the Russian ruble in 1998 after the financial crisis known as the ruble crisis
together with the uninterrupted upward trend that oil prices experienced in the period from1999
to 2008 propelled the Russian economy—heavily reliant on its energy sector exports to grow at
an annual average rate of 7%. Russia was among the hardest-hit economies by the 2008-2009
global economic crisis: the economy plunged 7.8% in 2009 as oil prices plummeted and foreign
credit dried up. The economic contraction was the sharpest since 1994, but no long-term damage
was caused due to the government and Central Bank’s proactive and timely response to ring
fence key sectors of the economy, in particular the banking sector, from the effects of the crisis.

As a result, Russia’s economy began to grow again and increased 4.5%, 4.3% and 3.4% in 2010,
2011 and 2012, respectively, before slowing to 1.3% in 2013 and 0.6% in 2014.
Inflation has been falling rapidly since August 2015, when it reached a peak of 15.8%. Along
with the fall in inflation, Central Bank lending rates have been reduced. Russian bonds and
equities are performing well against those of other emerging markets and a modest recovery in
oil prices has bolstered economic sentiment.
Considering that the price for Urals oil will average USD 38 per barrel in 2016, the Central Bank
expects the economy to contract between 0.3% and 0.7% this year, which is less than the Bank’s
previous estimate that saw the economy contracting between 1.3% and 1.5%. The Bank expects
the economy to expand at a rate of between 1.1% and 1.4% in 2017, assuming that Urals oil
prices average USD 40 per barrel. Previously, the Bank had expected the price for Urals oil to
average USD 35 per barrel and had projected economic growth rising to within a range of minus
0.5% and plus 0.5% in 2017.

Russia’s Balance of Payments

Russia’s current account records regular trade surpluses largely due to exports of commodities
such as crude oil and natural gas. From 2010 to 2014, Russia’s average current account surplus
was USD 66.8 billion, reaching a peak in 2011 at USD 98.8 billion.
Russia’s balance of payments suffered a significant terms-of-trade shock in the fourth quarter of
2014 as a result of falling oil prices, which were, in part, offset by a drop-in import.
Simultaneously, geopolitical uncertainties and related sanctions in 2014 resulted in large capital
outflows, further deteriorating Russia’s BoP. Private sector capital outflows increased from USD
60.7 billion in 2013 to USD 130.5 billion in 2014. During the same period, capital and financial
accounts of the Russian Federation fell from a deficit of USD 45.4 billion to a deficit of USD
146 billion (2.2% and 7.8% of GDP, respectively).

Russia’s economy registered the steepest contraction since 2009 last year as a combination of
external factors—such as a plunge in oil prices and international sanctions—coupled with
structural weaknesses took a heavy toll on growth. The economy contracted 3.7% in the full year
2015, which contrasted the meagre growth registered in the previous year.

However, the contraction in the Russian economy in the second quarter of 20167 was the slowest
since the recession began in late 2014. Comprehensive data showed that GDP contracted 0.6%
annually in Q2, which came in above the 1.2% decrease recorded in Q1. Although industrial
production shrank in September, falling at the fastest pace seen in 8 months, it is expected to
expand slightly in 2016 after suffering the worst contraction in six years in 2015.

Russia’s trade structure

Crude oil, petroleum products and natural gas comprise roughly 58% of total exports, iron and
steel represent 4% and other mining sector related exports including gems and precious metals
account for about 2.5%. Sales to Europe represent over 60% of total exports while Asia has an
export share of roughly 30%. Russian exports to the United States, Africa and Latin America
combined represent less than 5% of total shipments.
Russia’s main imports are food and ground transports, which represent 13% and 12% of total
imports, respectively. Other significant imports include pharmaceuticals, textile and footwear,
plastics and optical instruments. Exports peaked in 2012 reaching USD 527 billion; imports
peaked in 2013 reaching USD 341 billion.
In August of 2015, Russian exports amounted to USD 25.0 billion, which marked a 39.7%
contraction in annual terms. This marked the 10th consecutive contraction at a double-digit rate.
Imports totaled USD 16.5 billion, which marked a 34.7% year-on-year contraction.
 Russia’s trade surplus is narrowing rapidly.
Russia’s trade surplus narrowed to USD 4.4
billion in August of this year, which came
in dramatically below the USD 8.8 billion
registered in the same month last year and
the USD 16.2 billion the prior year.
August’s result prompted the 12-month
rolling surplus to decrease to USD 99.5
billion, the smallest accumulated surplus in
over a decade. The fall in the trade surplus
continues to reflect the free fall that Russian
exports have registered over the last few
years.

Russia’s Monetary Policy

The Central Bank of Russia (Bank Rossii), founded in 1990, has several responsibilities in
compliance with the Russian Constitution and Russian Federal Law: maintaining the value and
stability of the ruble, overseeing Russian financial institutions (including acting as a lender of
last resort), managing Russia’s foreign reserves and foreign exchange, and setting short-term
interest rates, which is one of the main instruments of the bank’s monetary policy
implementation.

Low oil prices and sanctions shocks to the Russian economy resulted in the ruble losing 46% of
its value against the U.S. dollar in 2014, prompting policies from the Bank Rossii aimed at
stabilizing the financial system. Bank Rossii raised its key interest rate in December 2014 by 650
basis points to a lofty 17% to curb runaway inflation caused by the weakened ruble (core
inflation reached 11.2% in December 2014, year-on-year). Bank Rossii spent USD 27.2 billion
in October 2014 and USD 11.9 billion in December of the same year on interventions to support
the ruble.
Russia’s Central Bank gradually reduced interest rates over the course of 2015, starting the year
at 17.00% and reduced to 11.00% by July. Interest rates were kept steady for nearly a year until
June 2016 when they were cut by 50 basis points to 10.50%. In making the decision to cut
interest rates, the Central Bank indicated that authorities were more confident about the evolution
of inflation and noted the positive results of a drop in inflation expectations and decreased
inflation risks against a backdrop of their slowly but surely recovering economy.

Since then there has been a noticeable drop in inflation, which drove the Bank to cut rates in
September 2016 from 10.50% to 10.00%. Authorities did however state that in order to cement a
sustainable fall in inflation, “the current value of the key rate needs to be maintained till end-
2016 with its further possible cuts in 2017 Q1-Q2.” Considering its decision, the Bank remains
confident that with a still relatively-tight monetary policy, inflation will fall to 4.5% in Q3 2017
and decrease further toward its 4.0% target at the end of 2017. The bank also indicated that it
will hold off from further monetary easing until the first or second quarters of 2017.

Russia’s Exchange Rate Policy

On 10 November 2014, Bank Rossii un-pegged the ruble from a dual-currency (U.S. dollar and
euro) basket band, ending two decades of exchange rate controls and moving Russia to a free-
float exchange rate system. The Central Bank also ended the regular interventions with the ruble
but signaled that it remained committed to intervening in support of the Russian currency in case
there were risks to financial stability. As the ruble continued to slide against the greenback
because of falling oil prices and higher uncertainty among investors, the Central Bank decided to
continue intervening in the foreign exchange market, costing the Central Bank hundreds of
millions per day.

The value of the ruble first began to fall in early 2014 after several years of an exchange rate of
roughly 30 RUB per USD, as the country was acutely affected by weak economic growth, high
geopolitical risks following the annexation of Crimea and the outbreak of war in Ukraine.
However, it was with the collapse of oil prices at the end of 2014 when the ruble’s value could
not defy gravity and thus began its free fall against the U.S. dollar, with the currency bottoming
out at 68.5 RUB per USD on 16 December. Throughout 2015, the Russian ruble has been on a
roller coaster. High volatility and strong fluctuations in oil prices have weighed heavily on the
country’s currency. The beginning of 2015 saw strong volatility in the foreign exchange market,
but the Russian currency stabilized within a corridor of 50 to 60 RUB per USD at the end of the
first half of the year. There was another episode of strong volatility at the outset of second half of
the year and, on 24 August, the Russian currency closed the trading day at 70.9 RUB per USD,
which was even lower than the aforementioned low point of the December 2014 ruble crash and
represented a new all-time low. The sharp drop in August was primarily a response to falling oil
prices and rising fears regarding the effects that the shockwave caused by China’s stock-market
crash could have on the global economy. The ruble closed 2015 at 72.9 RUB per USD—a 30%
loss in value compared to the end of 2014.

Fluctuations of the Russian ruble are largely driven by the price of oil, which along with gas, is
Russia’s main commodity export. The currency took a dramatic fall to an all-time low of 82.4
RUB per USD on 21 January 2016, as oil prices fell to lows not seen in over a decade. It has
gradually stabilized between 60 and 70 RUB per USD as the economy has improved and oil
prices have crept back up since January 2016.

Russian Foreign Exchange Market

Over the years, the foreign exchange market in Russia has reflected the general development of
the Russian economy and its increasing participation in the world economy. The government of
Russia introduced ruble convertibility with an eye toward transition of the country’s economy
into a market economy. Russia’s foreign exchange rate has changed from multiple exchange
rates, to managed floating, to soft peg.

The Russian foreign exchange market underwent major changes with price liberalizations in
1992, and as a result of that the ruble became a genuine and important currency. The dollar is
also an important medium of exchange in Russia, but the ruble has not been side-lined. Hard
currency can be held in Russia, and a common practice among the Russian people is to convert
the rubles in their possession into dollars and vice versa.
The Central Bank of Russia created the first currency exchange in the country, and in the
following year, it was renamed the Moscow Interbank Currency Exchange (MICEX). This entity
carries out foreign currency trading in Russia.

The Russian foreign exchange market is controlled by the Central Bank of Russia. It issues
special licenses to commercial banks and thus controls the internal foreign exchange turnover.

The authorized commercial banks the right to trade in foreign currency both internally and
externally. Banks buy foreign currency from exporters and sell them to importers. The Russian
foreign exchange market is mostly centralized. The major currencies traded in the foreign
exchange market Russia include the dollar, the Euro, and the Japanese yen. The Russian foreign
exchange market is one of the financial markets that have made their mark in the Russia
economy. (Forex Market, n.d.)

The financial crisis in Russia in 2014–2016 was the result of the collapse of the Russian ruble
beginning in the second half of 2014. A decline in confidence in the Russian economy caused
investors to sell off their Russian assets, which led to a decline in the value of the Russian ruble
and sparked fears of a Russian financial crisis. The lack of confidence in the Russian economy
stemmed from at least two major sources. The first is the fall in the price of oil in 2014. Crude
oil, a major export of Russia, declined in price by nearly 50% between its yearly high in June
2014 and 16 December 2014. The second was the result of international economic sanctions
imposed on Russia following Russia's annexation of Crimea and the Russian military
intervention in Ukraine.

The crisis affected the Russian economy, both consumers and companies, and regional financial
markets, as well as Putin's ambitions regarding the Eurasian Economic Union. The Russian stock
market in particular experienced large declines, with a 30% drop in the RTS Index from the
beginning of December through 16 December 2014. From July 2014 to February 2015 the Ruble
fell dramatically against the U.S. dollar. A 6.5 percentage point interest rate rise to 17 percent
failed to prevent the currency hitting record lows in a "perfect storm" of low oil prices, looming
recession and Western sanctions over the Ukraine crisis.

Russian ruble per US dollar between 2014-2017

Russian ruble per Euro from 2005

(Russian Ruble, n.d.)

The Role of the Bank of Russia in the Forex Market

The introduction of the floating exchange rate regime means the diminished ability of The Bank
of Russia regular in performing currency interventions to influence the Ruble exchange rate. The
policy of the central bank in a floating rate is to not interfere in the market processes under
normal conditions and to allow the Ruble exchange rate to fulfil its role as the Built-in stabilizer.
Similarly, the Bank of Russia continues to closely monitor the situation in the foreign exchange
market and can conduct operations with foreign exchange in order to maintain financial stability.
The Bank of Russia can conduct operations in the foreign exchange market and to replenish
international reserves.

As a protector of Russian financial stability, the Bank of Russia considers such dynamics of the
exchange rate, which can lead to the formation of stable devaluation expectations, increased
demand for cash foreign currency, increased dollarization of deposits and a significant
deterioration in the financial stability of credit institutions and enterprises.

A significant amount of international reserves will enable the Bank of Russia to conduct
operations on the international forex markets in order to maintain financial stability, as well as
ensure uninterrupted servicing of external debt for several years, even in a difficult economic
situation.

When making decisions on the purchase of foreign currency, the Bank of Russia takes into
account the dynamics of the exchange rate, the state of the Russian economy and the balance of
payments.

(Role of Bank, n.d.)

Russian rubles per USD 1998–2018

Lowest ↓ Highest ↑ Average

Year

Date Rate Date Rate Rate

2010 16 April 28.9310 8 June 31.7798 30.3679

2011 6 May 27.2625 5 October 32.6799 29.3823

2012 28 March 28.9468 5 June 34.0395 31.0661

2013 5 February 29.9251 5 September 33.4656 31.9063

2014 1 January 32.6587 18 December 67.7851 38.6025

2015 17 April 49.6749 31 December 72.8827 61.3400

2016 30 December 60.2730 22 January 83.5913 66.8336

2017 26 April 55.8453 4 August 60.7503 58.2982

2018 28 February 55.6717 12 September 69.9744

Balance of payment
Balance of payment means Countries international trade. If it is balance of payment surplus
means the exports more than it imports and it is providing enough capital to pay for all domestic
production, but it will vice versa in the case of balance of payment deficits.

Balance of payment of Russia

The Russian balance has been weaken in the year 2018 because the Russian were depends on
other country for the crude oil, due to this The ministry of finances of Russia adjusted fiscal
rule will reduce dependence on oil prices in 2018, so capital flows will be even more important
for the ruble's to be stronger than before. (Russia, n.d.)

Status in the 2017 of Russian balance of payment

Current account
In the year 2017 the Russian BOP was stronger, according to central bank of Russia’s BOP in
term of goods the year 2017 the current account is increase to US$40.2 bn from US$25.5bn in
the 2016 which shows that the Russian stronger goods exports. Because in the year in the 2017
the Energy exports increased from US$154bn to US$195bn on the back of higher oil prices and
expanded supply of natural gas, while non-energy exports also surged from US$128bn to
US$158bn. but in terms of services All other C/A components like services, trade and balances
in labor, investment and secondary incomes have all declined in 2017 in comparison to 2016 due
to the economic recovery and stronger domestic demand. (Reports, n.d.)

The financial account

In the year 2017 the Russian financial deficit increases to US$21 bn from US$11.9bn in 2016
and it is natural under the floating RUB and higher current account surplus. The biggest
component of the financial account is private capital flows saw a wider gap too of US$31.3bn
from US$19.8bn in 2016. The errors and omissions line improved significantly to US$3.8bn
from US$4.6bn in 2016.

All this made the overall balance of payments significantly stronger in 2017 at US$22.6bn vs
US$8.2bn in 2016.
Key balance of payments components

Status of Russian bop in the year 2018

Russia’s trade surplus expanded to USD 18.7 billion in October of 2018 from USD 10.1 billion in
the corresponding month of the previous year means 2017 and performed well than market
expectations of a USD 17.9 billion surplus. Exports jumped 30.8 percent to USD 41.3 billion in
October from USD 31.6 billion a year ago (2017), as exports to non-CIS countries climbed 33.7
percent to USD 35.9 billion and those to commonwealth of independent states (CIS) countries
went up 14.4 percent to USD 5.43 billion. Imports increased at a much slowly 0.5 percent year-
on-year to USD 21.62 billion, rebounding from a 2.9 percent drop in the prior month. Imports from
non-CIS countries edged up 0.2 percent to USD 19.29 billion and those from CIS countries
increased 3 percent to USD 2.32 billion. (BOP, n.d.)
Forecasting the Russian BOP

Balance of Trade in Russia is expected to be 15200.00 USD Million by the of 2018 and
according to Trading Economics global macro models and analysts expectations. They are
Looking forward and estimate the Balance of Trade in Russia to stand at 9800.00 in the year
2019. In the long-term, the Russia Balance of Trade is projected to trend around 10900.00 USD
Million in 2020. (Analysis, n.d.)
Russia’s balance of trade and the global oil price index in 2006–2018

Current account

Capital account
Financial account
Top 10 international trade partners of Russians
Russia shipped US$359.2 billion worth of products around the globe in 2017. That figure
represents roughly 2.2% of overall global exports estimated at $15.952 trillion one year earlier in
2016. (Russian Economy, n.d.)

From a continental perspective, 54% of Russian exports by value were delivered to European
countries while 36.4% were sold to Asian importers. Russia shipped another 4% worth of goods
to Africa with 3.6% going to North America.

1. China: US$38.9 billion (10.9% of total Russian exports)

2. Netherlands: $35.6 billion (10%)
3. Germany: $25.7 billion (7.2%)
4. Belarus: $18.4 billion (5.2%)
5. Turkey: $18.2 billion (5.1%)
6. Italy: $13.8 billion (3.9%)
7. South Korea: $12.3 billion (3.5%)
8. Kazakhstan: $12.3 billion (3.5%)
9. Poland: $11.6 billion (3.2%)
10. United States: $10.7 billion (3%)
Top exports and imports of Russian
Exports:

Russian main exports are energy (oil and petroleum products, gas, coal), rolled steel, ferrous and
nonferrous metals and minerals. The greater part of Russian exports belongs to oil and petroleum
products. Other leading exports are natural gas, timber, fertilizers, machinery and equipment,
armaments. The foreign countries receive from Russia over 300 million tons of oil and
approximately 250 billion cubic meters of gas.
Russia shipped US$359.2 billion worth of goods around the globe in 2017. That dollar amount
for Russian exports reflects a -31.9% drop since 2013 but a 25.8% improvement from 2016 to
2017. (Russia, n.d.)
From January to August 2018, exported goods from Russia were valued at $286 billion. This 8-
month metric puts Russian exports on track for an annualized $429.1 billion estimated for all
2018.

Top 10 exports of Russia

1. Mineral fuels including oil: US$173.3 billion (48.5% of total exports)
2. Iron, steel: $18.8 billion (5.3%)
3. Gems, precious metals: $11 billion (3.1%)
4. Machinery including computers: $8.5 billion (2.4%)
5. Wood: $7.9 billion (2.2%)
6. Cereals: $7.5 billion (2.1%)
7. Fertilizers: $7.2 billion (2%)
8. Aluminum: $6.7 billion (1.9%)
9. Copper: $4.7 billion (1.3%)
10. Electrical machinery, equipment: $4.3 billion (1.2%)

Imports:
Russia imports machinery and equipment, vehicles, consumer goods, foodstuffs, chemical
products, industrial consumer goods.
Russia imported US$228.2 billion worth of goods from around the globe in 2017, down by -
27.5% since 2013 but up by 25.2% from 2016 to 2017.
As of June 2018, Russia’s import purchases were valued at $115.3 billion up 13.5% compared to
the first 6 months of 2017. (Analysis, n.d.)
Russian imports represent 1.4% of total global imports which totaled $16.054 trillion one year
earlier in 2016.

Top imports of Russia

1. Machinery including computers: US$45.3 billion (19.8% of total imports)
2. Electrical machinery, equipment: $26.7 billion (11.7%)
3. Vehicles: $21.5 billion (9.4%)
4. Pharmaceuticals: $10.8 billion (4.7%)
5. Plastics, plastic articles: $8.8 billion (3.8%)
6. Aircraft, spacecraft: $6.5 billion (2.8%)
7. Optical, technical, medical apparatus: $6.2 billion (2.7%)
8. Articles of iron or steel: $5.3 billion (2.3%)
9. Iron, steel: $4.8 billion (2.1%)
10. Fruits, nuts: $4.7 billion (2%)

Russia and Indian relationship in trade

The bilateral relations between India and Russia. During the Cold War, India and the Soviet
Union (USSR) had a strong strategic, military, economic and diplomatic relationship. After the
collapse of the USSR, Russia inherited the close relationship with India. This resulted in India and
Russia sharing a special relationship.

Russia has been a long standing, significant partner of India and the relationship with Russia
forms a cornerstone of India’s foreign policy. Russia has assisted India in major development
projects such as the multipurpose dam at Bhakra Nangal, the steel plant at Bhilai and IIT
Mumbai.

India’s engagement with Russia now extends to all areas of bilateral cooperation including
defence, education, trade and economy, energy and science and technology.
India-Russia trade ties acquired greater significance in 2000 with the signing of “Declaration on
the India-Russia Strategic Partnership”, during the visit of Russian President, HE Mr Vladimir
Putin to India. The “Strategic Partnership” was elevated to the level of “Special and Privileged
Strategic Partnership” during the visit of the Russian President to India in 2010. Druzhba-Dosti
was signed by Prime Minister Shri Narendra Modi and President Putin in December 2014, a
vision for the next ten years. (Rus, n.d.)

India-Russia Trade in Last Ten Years

Historically, India and Russia have been strong trading partners. However, over the last five
years, India’s total trade with Russia remained fairly constant at around US$ 6 billion. In 2016-
17, total trade went up to US$ 7.5 billion, registering an impressive growth rate of 22 per cent.

India’s exports to Russia have increased from US$ 0.94 billion in 2007-08 to US$ 1.9 billion in
2016-17 (Figure 1). Indian exports peaked during 2012-13, with total value of exports at US$ 2.3
billion. On the other hand, Indian imports from Russia increased from US$ 2.5 billion in 2007-08
to US$ 5.7 billion in 2016-17.
Major Exports and Imports

Imports :

India’s trade basket with Russia is well diversified. In April-Feb 2016-17, among India’s top
imports from Russia, gems and jewellery (HS Code 71) occupied the leading position,
accounting for 45.4 per cent of the total. The other major imports included petroleum products,
fertilisers, iron and steel and paper products. The category wise percentage shares of key imports
are given below.

India’s Major Imports from Russia as % of Total Indian Imports from Russia

EXPORTS :

The top Indian export to Russia was pharmaceutical products (HS Code 30), accounting for 18
per cent of the total Indian exports to Russia. Other key exports included machinery and parts,
beverages and spices, aircrafts and parts and organic chemicals. The category wise percentage
shares of key exports are given below.
India’s Major Exports to Russia as % of Total Indian Exports to Russia

Conclusion:
We would like to conclude by considering the following points:

Balance of payment:

Since the greater part of Russian exports belongs to oil and petroleum products and there is
growing demand for petroleum products worldwide, the favorable trend of BOP will continue in
the upcoming years.

Services:

In terms of services all other C/A components like services, trade and balances in labor, investment
and secondary incomes have all declined in 2017 in comparison to 2016 due to the economic
recovery and stronger domestic demand. So, they can concentrate more on expanding their
services which is in demand by both domestic and other countries. In this area, there is scope for
improvement and development. It cannot be improved all at once. But it can be gradually
improved.
Exchange rate:

Change in balance of payment causes fluctuation in exchange rate when there is floating exchange
rate.

There is decline in Ruble against USD. So, they must focus on strengthening the currency. Once
they strengthen their currency, it is important for them to maintain stable currency.

Quantitative tightening:

Quantitative tightening helps to tighten the policies in Russia that helps to focus on maintaining
stable and low inflation and higher interest rate.
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