Russia to resume FX interventions with adjusted formula that could boost rouble

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) -The Russian central bank said on Monday it would resume interventions in the domestic foreign exchange market from January, but with an adjusted formula that analysts said would likely support the rouble.

The central bank in August stopped buying foreign currency until the end of the year to avoid aggravating pressure on the rouble, which tumbled past 100 to the dollar in August and September. Capital controls have since helped it recover to 88.5.

In announcing the resumption, the central bank added a crucial caveat that its interventions calculations would include the difference between FX purchases deferred from Aug. 10 to Dec. 31 and the volume of rainy day fund spending on financing the government’s budget deficit for 2023.

“This is very unexpected news,” said CentroCreditBank economist Yevgeny Suvorov, anticipating that National Wealth Fund (NWF) expenditures would be higher than the amount of deferred purchases.

“Therefore, from the start of 2024, the central bank will not buy foreign currency (that it did not buy in August-December), but will increase its sales,” Suvorov said. “This is very good news for the rouble.”

The rouble did not react on Monday, continuing to hover near a more than five-month high it hit last week.

Analysts tended to agree that the central bank would engage in net sales in early 2024.

Dmitry Polevoy, head of investment at Locko Invest, estimated deferred purchases at around 1.7-1.8 billion roubles ($19-$20.1 million) and NWF expenditures on financing the budget deficit at 3.46 billion roubles.

“The difference will amount to 1.65-1.75 billion roubles of net currency sales,” Polevoy said.

It was not yet clear over what timeframe the central bank would spread its interventions.

The final calculations, to be announced in late December, will also include the net volume of NWF investments in rouble financial assets and the volume of regular operations under Russia’s budget rule.

Under its budget rule, Russia sells foreign currency from the NWF to make up for any shortfall in revenue from oil and gas exports, or makes purchases in the event of a surplus.

The central bank conducts those operations on behalf of the finance ministry, which resumed its interventions in January after a hiatus of several months, shunning what it terms “unfriendly” Western currencies in favour of China’s yuan.

But on the back of recovering energy revenues, the finance ministry switched from sales to purchases in August, heaping more pressure on the rouble and causing the central bank to halt its usual mirroring of the finance ministry’s operations to try and limit rouble volatility.

($1 = 89.7230 roubles)

(Reporting by Elena Fabrichnaya and Alexander Marrow; Editing by Mark Trevelyan and Susan Fenton)