Ruble Slides After Bank of Russia Says FX Buying May Resume

(Bloomberg) -- Russia may resume foreign currency purchases that were put on hold earlier this year as soon as January, Central Bank Governor Elvira Nabiullina said, causing the ruble to slide the most in emerging markets.

“If the current situation on the financial markets continues, we think it will be possible to resume the regular purchases of foreign currency after the New Year holidays, from the 15th of January,” Nabiullina told reporters at the VTB Capital forum in Moscow Wednesday.

Ruble Slides After Bank of Russia Says FX Buying May Resume

The comments were the clearest indication to date that the regulator would resume the buying it put on hold in August as the ruble plunged. Investors have grown increasingly concerned about the possibility it would resume the purchases as a year-end deadline for the current pause draws nearer. The central bank announced that suspension in September along with a surprise rate hike in an effort to stabilize market.

The ruble has recovered a bit since then as fears of new U.S. sanctions have faded, but the recent fall in oil prices has clouded the outlook. Nabiullina said that on its own wouldn’t factor into the central bank’s decision on resuming the buying of foreign currency.

Ruble Slides After Bank of Russia Says FX Buying May Resume

The ruble retreated as much as 0.6 percent after the central bank governor’s comments, before eroding some of its losses later in the day.

“I doubt she will be undertaking huge FX purchases immediately and I think this is why she was careful not to commit 100% and merely leave that option open,” said Julian Rimmer, a trader at Investec Bank Plc in London. “Of course, though, everything depends on sanctions, their severity, their timeline, their scope.”

Nabiullina also said the regulator will choose between keeping rates on hold and raising them at its next board meeting on Dec. 14, noting that while emerging-market instability and sanctions fears have abated somewhat, the fall in oil prices and rising inflationary expectations add to risks to price stability.

The decision on foreign-currency buying will be announced on that day as well. The central bank will decide later when to begin making up the billions of dollars in purchases missed during the current pause. They will be conducted “very gradually” through at least 2021, she said.

The central bank has been buying foreign currency as a part of a fiscal rule aimed at limiting the impact of oil prices on the ruble. Under the mechanism, the Finance Ministry converts ruble revenue from oil prices above $40 a barrel into foreign currency held in a rainy-day fund at the central bank, which then sells the rubles to build up its reserves. That final leg of the transactions was suspended in August.

Economists are split on whether or not the central bank will hike rates again in December after its first raise since 2014 earlier this year. Policy makers have previously insisted that Russia isn’t in a tightening cycle, but have also warned that inflationary risks may prompt more hikes.

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