The Russian economy continues to grow strongly, buoyed by rising terms of trade, which, in turn, are
supporting a boom in domestic consumption. This paper addresses the challenge that the adjustment to
sustained high oil prices poses for macroeconomic management. It first examines the impact of rising
terms of trade on the domestic economy, particularly with respect to exchange-rate appreciation,
competitiveness and inflation. It then considers the role of monetary and fiscal policies in ensuring a
smooth adjustment to the higher terms of trade. The paper argues that fiscal policy should be the primary
instrument for tackling this challenge. It therefore focuses on the potential role of a fiscal rule in insulating
the economy and the budget from commodity-price fluctuations, and on the management of windfall oil
and gas revenues accumulated in the fiscal Stabilisation Fund.
