Page 58 - RusRPTDec18

7.1 FX issues
Russia's Finance Ministry will set a new record for currency purchases in November as it builds up a war chest ahead of potentially “crushing” sanctions that may be imposed by the US this autumn.
Ministry of Finance has earmarked a whopping RUB526bn ($8bn) for purchasing foreign currency from the Central Bank of Russia (CBR) or RUB25bn daily between November 8 and December 6, the ministry said.
If these purchases are combing with the RUB514bn of extra oil and gas revenues that the ministry expects to receive (oil and gas revenues earned from more than $40 per barrel oil price peg cannot be used for budget spending according to the so-called budget rule) then the total amount of currency purchases will set a new record high following September's RUB427bn worth of purchases.
At the end of last year Russian First Deputy Prime Minister and Finance Minister Anton Siluanov said that Russia could spend RUB2 trillion ($35bn) on foreign currency in 2018, but the ministry has spent half that amount in just the last two months. Analysts at ING had predicted the finance ministry would increase its foreign currency purchases to more than $27bn in 2018 from around $15bn in 2017, but that estimate has long since been exceeded.
However, the ministry’s massive purchases will not have any spill over effect in the currency market and as they are sterilised, absorbed on the CBR's accounts.
Previously the CBR was using the Finance Ministry's extra cash to buy currency off the open market. However, amid ruble volatility in August the CBR halted currency interventions and extended the pause until the end of 2018 in September's key interest rate policy decision.
Some analysts criticised the CBR decision as a deviation from the policy of free-floated national currency, arguing that regulator's interest rate hike coupled with regulating FX interventions seems to be motivated by the weakening of the ruble, especially given still low inflationary risks.
“The decision to raise the key rate looks like a cover-up,” Natalia Orlova, chief
58 RUSSIA Country Report December 2018 www.intellinews.com