Dissecting Russia’s new fiscal rule

Russia’s new “fiscal rule”, which takes effect this week, is unusual insofar as it governs how the budget deficit is financed, rather than anchoring either the size of the deficit or the scale of government expenditure to oil prices (as is more normal). Much depends on how the new rule is implemented but in theory it could put downward pressure on the ruble, while at the same time causing an expansion in the monetary base. In practice, we suspect the effects will be limited.