Russia’s Finance Ministry joined the central bank in buying foreign exchange to take advantage of this year’s ruble gains after earlier efforts to stem the world’s biggest currency rally fell flat.
The purchases, carried out for several weeks, will be used to cover this year’s budget expenditures denominated in foreign currency, including debt payments, Deputy Finance Minister Alexey Moiseev told reporters in Moscow on Tuesday. The transactions had no impact on the domestic currency market or the volume of foreign-exchange liquidity, according to the central bank.
“From the point of view of managing our own spending, we clearly consider the ruble to be very strong,” Moiseev said. “That’s why we are trying to plan the purchases in advance.”
Authorities are trying to tame the ruble’s 23 percent rally against the dollar this year after a slump in oil prices and sanctions over the conflict in Ukraine wiped out almost half of its value in 2014. The Bank of Russia, which has cut interest rates three times this year, started daily purchases of foreign currency last week for the first time since June to replenish reserves. It also canceled an auction of repurchase agreements in foreign currency on Monday, citing developments in the market.
“That’s another step to calm the ruble’s strengthening,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “The government and the central bank are working as a team. We expect more steps to come.”
The ruble fell for the first time in three days after the announcement. It traded 0.8 percent to 49.5460 as of 5:10 p.m. in Moscow.
Policy makers, who shifted to a free-floating exchange rate in November, have previously moved to blunt the ruble’s gains by raising the rate they charge banks for foreign currency at repo auctions. In April, Finance Minister Anton Siluanov said the ruble rebound had been too strong, and central bank First Deputy Governor Ksenia Yudaeva warned the same week that the rally was over.
The ruble’s strength is cutting into budget revenue by reducing export proceeds, pushing the four-month fiscal gap to 4.4 percent of economic output. The government projects this year’s deficit at 3.7 percent, the widest since 2010.
The cost of servicing external debt was increased to 165 billion rubles ($3 billion) this year, a jump of 57 billion rubles from an earlier plan, after the ruble’s depreciation, according to budget amendments.
While the purchases by the Finance Ministry were reflected on budget accounts held at the central bank, they weren’t carried out on the currency market and didn’t affect it, the Bank of Russia said in an e-mailed statement.
The Finance Ministry has no intention of buying foreign currency for the Reserve Fund, one of the government’s two sovereign wealth funds, according to Moiseev. The government plans to transfer 402 billion rubles of 2014 surplus oil and gas revenue into the rainy-day fund this year.
A stronger ruble “is increasingly becoming a headache for policy makers,” Liza Ermolenko, an analyst at London-based Capital Economics Ltd., said by phone. “All of the gained competitiveness may be erased by the end of the year, and obviously it’s a problem.”