Page 53 - RusRPTFeb22

talks between Russia and the West. The bank also admitted that it had previously underestimated the danger and, as a result, suffered trading losses. Currency traders have been overweight the ruble before the crisis which was until October one of the best performing currencies in the world. But as tensions rose the bank said at the beginning of 2022 it could no longer ignore negative scenarios and announced its earlier long term recommendation to hold the ruble were no longer valid.
Foreign investors began to sell the ruble starting in October. The Russian Ministry of Finance ruble-denominated OFZ treasury bills has seen $3.4bn of outflows in recent months, while the equity market has also been knocked back, giving up all of its gains last year, following $13bn of outflows.
After a good 2021, the ruble has started this year as the worst performing currency in the world, losing 5.4% of its value year to date, despite oil prices over $88, the highest in years.
The CBR halted forex purchases on January 24 as the ruble collapsed close to RUB80 vs the dollar. Two weeks prior, the Ministry of Finance announced that it planned to purchase RUB586bn, or around $7.9bn, during the period 14 January-4 February. That implied that daily purchases would increase by 60% m/m in January: from RUB23bn ($0.32bn) in December to RUB36.6bn ($0.5bn) in January.
This step could increase pressure on the ruble by contributing an additional 1-2% to the ruble depreciation. Thus, the CBR was prompted to halt forex purchases on behalf of the Ministry of Finance and support the Russian currency, which has already depreciated by c5% since end-2021.
However, while this decision may reduce excess volatility on the forex market, it may undermine the base of the budget rule, which has been regularly amended due to high market volatility. In fact, this pause in the budget rule seems similar to the situations that the market faced in 2018, when the combination of rising oil prices and increased sanction risks together with net capital outflows made the budget rule unsustainable.
53 RUSSIA Country Report February 2022 www.intellinews.com