By Gleb Bryanski and Alexander Marrow
MOSCOW (Reuters) – Russia’s central bank said on Wednesday it will halt foreign currency purchases to ease pressure on financial markets after the ruble weakened above 110 against the U.S. dollar, down by one third since early August.
The central bank said it had decided not to buy foreign currencies on the domestic market from November 28 until the end of the year, but to postpone these purchases until 2025.
“The decision was taken to reduce volatility in the financial markets,” the regulator said in a statement. Since Russia could no longer use the dollar and the euro, the country has carried out currency interventions using .
Russia released new economic data on Wednesday highlighting the latest signs of overheating in an economy that has been retooled with the aim of fighting the war in Ukraine that has sucked workers out of the workforce.
Real wages rose by 8.4% year-on-year in September, unemployment hit a record low of 2.3% in October and weekly inflation is almost 0.4%, all despite a benchmark interest rate of 21%.
By 1600 GMT, the ruble had fallen 7.25% to 113.15 against the dollar since the start of trading on Wednesday, according to LSEG data, further fueling inflation, which is running at around 8% per year .
The currency fell past 15 to the yuan, also the lowest level since March 2022, just after Russia’s invasion of Ukraine.
Under Russia’s budget rule, the Finance Ministry sells foreign currency from its National Wealth Fund on rainy days to make up for any shortfalls in oil and gas export revenues, or makes purchases in the event of a surplus.
The ministry’s currency operations are carried out by the central bank, which also carries out its own interventions.
The central bank said it would continue to carry out its own yuan sales at the equivalent of 8.4 billion rubles per day, increasing the Russian state’s net daily foreign exchange sales from about 4.2 billion rubles to the equivalent of 8.4 billion rubles.
Dmitry Pyanov, deputy CEO of Russia’s second-largest lender VTB, said sanctions imposed by the United States on Russia’s third-largest lender Gazprombank, which handles energy trading, were behind the ruble’s sharp fall.
“My assumption is that the sanctions against Gazprombank have had a significant impact, as it is no longer a channel for supplying foreign currency to the Moscow Exchange,” Pyanov said.
He said the central bank should focus in the coming days on stabilizing the foreign exchange market, which was now not functioning properly.
Analysts at PSB Bank said the decision would “modestly support the ruble, but will not be enough to return the exchange rate to last week’s levels”, and predicted the market would remain volatile.
RUBLE AND STOCK PRICES BOTH FALLING SSTEEPLY
The ruble’s decline is being compounded by a stock market decline of more than 20% so far this year as investors shift their savings from stocks to deposits, which offer interest above the benchmark rate of 21%.
Economy Minister Maxim Reshetnikov said the ruble’s volatility was due to the global strength of the dollar and market concerns after the latest sanctions, and not to fundamental factors. He predicted that the ruble would stabilize soon.
He said 82% of Russia’s exports and 78% of imports were paid for in rubles and in “friendly” currencies of non-Western countries.
Analysts said another measure the government could use is forcing exporting companies to sell more foreign currency by raising mandatory sales requirements, although not everyone was convinced this would work.
“If exporters cannot transact [due to sanctions]“The government’s demand to do this will not help the situation in any way,” said economist Evgeny Kogan.
The ruble’s fall is fueling inflation, which is expected to exceed the central bank’s estimate for this year, contradicting painful monetary tightening by the regulator, with interest rates at their highest level since 2003.
The central bank estimates that a 10% fall in the value of the ruble adds 0.5 percentage points to inflation, implying that the decline over the past four months may add 1.5 percentage points to inflation.
All trading in dollars and euros moved to the over-the-counter market after Western sanctions were imposed on the Moscow Stock Exchange (MOEX). As a result, trading has become volatile and opaque, with most banks only disclosing data to regulators.
