Putin Buying Dollars Again Shows Worst of Crisis Is Over

Updated on
Central Bank Governor Elvira Nabiullina
Central Bank Governor Elvira Nabiullina pauses during the 26th Congress of the Association of Russian Banks (ARB) in Moscow, on Tuesday, April 7. Photographer: Andrey Rudakov/Bloomberg

President Vladimir Putin is stockpiling dollars again, suggesting Russia’s first recession in six years can’t keep him from rebuilding his war chest.

The Bank of Russia said it plans to buy $100 million to $200 million a day to replenish its reserves after last year’s plunge. Sanctions over Ukraine and falling oil prices triggered a run on the ruble that forced the bank to spend about $90 billion before ending its defense of the currency in November.

Resuming foreign-currency purchases after an almost yearlong hiatus is economic pragmatism from a leader locked in the worst standoff with the U.S. in a generation, particularly one who’s decried the “dollar monopoly” that allows the U.S. to act like a “parasite” on the global economy.

“Putin was scarred by his early experience, when his freedom of movement was restricted by the need to repay debt,” said Tom Adshead of Adshead Consulting in Moscow. “He wants stability and maximum freedom and that’s what the monetary powers have been told to do.”

The policy shift comes after a rally that turned the ruble into this year’s best performer against the dollar among currencies tracked by Bloomberg.

The ruble has strengthened 21 percent against the U.S. currency this year after losing almost half of its value in 2014. It weakened for the first time against the dollar this week, falling 1.7 percent to 50.1130 as of 6:06 p.m. in Moscow.

Dollar Link

The central bank said the move isn’t intended to support the ruble at a certain level. At the daily amounts announced, it could take three years to recoup what was spent on interventions alone last year. Policy makers aren’t setting a “tight quantitative benchmark” for the level of reserves, the press service said in an e-mailed response to questions.

The decision suggests another, unspoken motive, according to Alfa Bank in Moscow: to resume managing the ruble’s rate against the U.S. currency, which remains a crucial indicator, whether authorities admit it or not.

This measure is “negative,” Alfa Bank analysts led by Natalia Orlova said in a research note. It shows that the “preference for a free-floating ruble is asymmetric,” favoring depreciation over appreciation, and “implies that the exchange rate remains the benchmark not only for the economy but also for the monetary authorities,” they said.

Buying foreign currency doesn’t contradict the policy of a ruble free float, the Bank of Russia’s press service said. Many central banks with unregulated currencies conduct similar operations to manage their international reserves, it said.

Limited Access

With continuing limits on Russian companies’ access to international capital markets, a cushion of “significant” international reserves will ensure foreign debt is serviced without interruption and the financial system functions stably, the press service said.

For more, read this QuickTake: Currency Pegs

The volume of daily operations may be adjusted if there are “significant changes on the foreign currency market,” the central bank said in the earlier statement.

With the economy heading into recession, the ruble’s advance has been driven by a rebound in the price of oil, Russia’s main export earner.

In April, Finance Minister Anton Siluanov said the rally had been too strong, with investors were snapping up government bonds like “hot pies.” The same week, central bank First Deputy Governor Ksenia Yudaeva warned the rally was over.

“The central bank considers that the ruble rate is adequate and has decided to intervene in the market in order not to lead to artificial ruble strengthening,” Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow, said by phone.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE