Page 69 - RusRPTApr20

OPEC+ oil production cuts deal on March 6. The CBR has refrained from large interventions on the FX market to support the ruble and is unlikely to as the priority is to protect the gross international reserves.
The CBR has announced the process it plans to use for selling FX on the open market following the settlement of the Sberbank deal. It complements the current Fiscal Rule, with the oil price floor (in terms of FX supply on the local market) essentially fixed at Urals $25/bbl. The new framework is favourable for FX liquidity, in our view, with the CBR selling an additional $0.5bn-$1.5bn on the open market for every $5/bbl decline in oil price below the set threshold, we estimate.
The CBR intends to replace the “shortfall of foreign currency supply in the domestic FX market due to the decline in proceeds from the export of oil, oil products and natural gas, when the price of Urals crude falls below $25/barrel”. If the oil price climbed above the $25/bbl mark, there would be no additional FX selling. To achieve this goal, the CBR is to use the cash proceeds received from the National Wealth Fund for its Sberbank stake.
Earlier, Vladimir Kolychev, the Deputy Finance Minister, estimated the value of the CBR’s stake in Sberbank at some RUB2 trillion. This mechanism is to be in place until at least September 2020.
In order to keep the market’s FX offer at the level of a $25/bbl oil price when the spot Urals price dips below that level, analysts estimate that the CBR would need to sell, in addition to its FX operations under the Fiscal Rule, $0.5bn, $1.1bn or $2.6bn per month for Urals at $20/bbl, $15/bbl and $10/bbl, respectively, which is supportive for FX liquidity in the Russian banking system and sentiment in the spot market.
According to the Fiscal Rule, when Urals crude falls below the $42.4/bbl threshold, MinFin starts selling FX from the National Wealth Fund in order to compensate for the declining base of oil and gas revenues for the budget. The CBR mirrors this operation on the open market (however, de jure it is not obliged to). MinFin published the calculated volumes of monthly FX operations on its website (available in Russian only).
These numbers were based on proceeds from oil and oil products, say analysts, excluding gas. Adding the gas items, VBTC calculates that for each $5/bbl decline of the oil price from $40 to $15, MinFin’s operations under the Fiscal Rule would compensate around $0.9bn from the $1.5bn export revenue shortfall.
69 RUSSIA Country Report April 2020 www.intellinews.com