Russia to Start Foreign Currency Sales After Ruble Wipeout
Bank of Russia to Start Foreign Currency Sales After Oil Plunge
(Bloomberg) --
The Bank of Russia readied its defenses against further market turmoil, bringing forward foreign-currency sales after the rout in oil prices made the ruble the worst-performer globally.
The currency of the world’s biggest energy exporter traded down 3.3% in Moscow as local markets reopened after a public holiday. That brought the ruble in line with offshore trading that saw it plummet on Monday as traders weighed the impact of the oil-price war between Russia and Saudi Arabia. Russian bonds and stocks tumbled at the open before paring declines as crude clawed back some of its losses.
The decision to start the foreign-currency sales early is aimed at “increasing the predictability of the actions of the monetary authorities and reducing volatility on financial markets amid significant changes in the world oil market,” according to a website statement from the central bank.
The government will also halt its weekly local-bond auctions in order to avoid “excessive pressure” on debt markets, the Finance Ministry said in a statement on Tuesday.
Russia’s policy makers are hunkering down for a long period of low oil prices after the Kremlin’s rift with the Saudis. The Finance Ministry said Monday that the country’s $150 billion National Wellbeing Fund can help the budget withstand a decade of crude prices as low as $25 per barrel.
Market Snapshot:
- Ruble slid as much as 6.1% against the dollar, but later pared its losses to 3.3% as Brent crude prices advanced
- Ten-year generic yields on local bonds traded up 30 basis points at 6.76%, trimming an earlier advance
- Russia’s MOEX stock index fell 4%; oil companies Rosneft PJSC and Lukoil PJSC led the retreat with declines of more than 12%
Russian Stocks Hit Lowest in More Than a Year as Markets Reopen
Fiscal Rule
The Finance Ministry said Monday it would start to sell foreign currency if oil prices stay below $42.40 per barrel, the cutoff level for the fiscal rule that’s helped stabilize the ruble. But that buying wouldn’t normally have started until next month. The central bank said it will being selling foreign exchange immediately from its own reserves and is ready to use additional tools to maintain financial stability.
Until Tuesday, the central bank had been regularly buying foreign currency on behalf of the Finance Ministry for the government’s rainy-day fund. If oil prices stay below the $42.40 cutoff price, the ministry will be selling from that fund to raise money to pay for budget spending.
Brent crude oil clawed back some of its 24% loss Monday, rising 8.3% to $37.21 per barrel.
The ruble was already down 10% in the year through Friday as the coronavirus spurred a flight from risky assets. Russian local-currency bonds had been a favorite among emerging-market investors in 2019 as bondholders put aside concerns about U.S. sanctions and focused instead on the country’s half a trillion dollars of reserves and one of the lowest debt burdens among major economies.
To contact the reporters on this story: Natasha Doff in Moscow at ndoff@bloomberg.net;Áine Quinn in Moscow at aquinn38@bloomberg.net
To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Alex Nicholson
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