Russia to Resume FX Interventions with Adjusted Formula
Russian Central Bank Announces Resumption of Interventions in Foreign Exchange Market
The Russian central bank has declared that it will resume interventions in the domestic foreign exchange market starting January. This move comes with an adjusted formula that analysts believe will likely provide support to the rouble.
Adjustments in the Wake of Rouble’s Performance
In August, the central bank ceased purchasing foreign currency until the year’s end to prevent further pressure on the rouble, which had depreciated to over 100 against the dollar. However, with the implementation of capital controls, the rouble has seen a recovery to 88.5.
Crucial Changes in Interventions Calculations
The central bank’s announcement included a crucial caveat stating that its interventions calculations would now factor in the difference between FX purchases deferred from August 10 to December 31 and the volume of rainy day fund spending on financing the government’s budget deficit for 2023.
Analysts’ Reactions to the Announcement
CentroCreditBank economist Yevgeny Suvorov expressed surprise at the news, anticipating that National Wealth Fund (NWF) expenditures would exceed the amount of deferred purchases. This, in turn, would lead to an increase in sales, which is seen as positive news for the rouble.
Implications for the Rouble and the Forex Market
While the rouble did not exhibit any immediate reaction, analysts are of the opinion that the central bank is likely to engage in net sales in early 2024. The final calculations, which will be announced in late December, are expected to include various factors such as NWF investments and regular operations under Russia’s budget rule.
Impact of Budget Rule on Currency Operations
Under the budget rule, Russia sells foreign currency from the NWF to compensate for any shortfall in revenue from oil and gas exports. The central bank conducts these operations on behalf of the finance ministry, and the recent changes have been influenced by recovering energy revenues and the government’s budget deficit.
Financial Outlook for the Rouble
With these significant adjustments in the central bank’s interventions, the financial outlook for the rouble appears to be evolving. The market is poised for further developments as the central bank prepares to resume its activities in the foreign exchange market.
