Bank of Russia Shelves Plan to Boost Its Reserves Amid Oil Rallyby and
Budget getting support as rally in ruble lags oil’s advance
Bank of Russia started to buy FX for reserves in May last year
The Bank of Russia has postponed plans to buy foreign exchange to rebuild its cash pile as the country’s fiscal prospects get a boost from surging crude prices.
There’s no “magical” ruble level that would prompt the central bank to resume foreign-currency purchases, Dmitry Tulin, first deputy central bank governor in charge of monetary policy, told reporters in Moscow on Monday. Citigroup Inc. and April Capital were among market players betting the Bank of Russia would halt the ruble’s appreciation to help the budget if it nears 60 against dollar. The currency gained 1 percent to 64.8370 by 7:25 p.m. on Monday.
“We’ve put the plan to replenish reserves on a distant shelf, and that shelf is getting dusty,” Tulin said. “Never say never, but we haven’t discussed it yet as a serious, timely plan and this isn’t in our forecasts.”
A year ago, policy makers announced a goal of boosting reserves to $500 billion in the long term, a 28 percent increase from current levels. While any dollar purchases would have the additional benefit of bolstering budget revenue from exports by weakening the local currency, there’s currently little need because the ruble has climbed at half the pace of crude this year, according to ING Groep NV.
That lag has created some breathing space for the government: The price of Brent in rubles rose to 3,189 on Monday, the highest this year and about 25 rubles above the average the Finance Ministry uses to estimate its 2016 fiscal targets.
“It doesn’t make sense to buy foreign currency for the reserves right now because the ruble is trading at fundamentally fair levels while oil prices aren’t too high,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING in Moscow, said by e-mail. Tulin’s comments “slightly support the ruble because there were many people on the market who expected the central bank to step in with foreign-currency purchases,” he said.
Even after rebounding 32 percent from the lowest level in more than a decade in January, Brent crude trading at $49.05 a barrel, still almost 60 percent below its 2014 peak. About a third of Russia’s budget revenue comes from oil and natural gas.
The Bank of Russia last stepped into the foreign currency markets when the ruble strengthened below 50 against the dollar in May. International reserves had tumbled as sanctions over Ukraine and falling oil forced policy makers to burn through about $90 billion in 2014 to slow the ruble’s drop.
“We assume the central bank could start reserve replenishment only if the year-average oil price approaches $50, or capital flight declines considerably,” said Oleg Kouzmin, chief economist for Russia at Renaissance Capital in Moscow. “If we have low oil, there’s always a chance of a ruble selloff, and if there’s a chance of a ruble selloff, the central bank wouldn’t make the environment more challenging by starting currency purchases.”