Russia All But Shuts Door to Chasing $500 Billion This Year

  • Top priority is to reach stable inflation at 4%, Yudaeva says
  • Central banker sees ‘very low’ chances of purchases this year

The Bank of Russia is keeping its priorities straight.

Policy makers will wait for a “calmer moment” before resuming purchases of foreign currency for reserves, which they consider secondary to the goal of targeting inflation at 4 percent, according to First Deputy Governor Ksenia Yudaeva.

Ksenia Yudaeva

Photographer: Andrey Rudakov/Bloomberg

While most economists surveyed by Bloomberg in May expected the program to restart already this year, the probability of that now is “very low,” Yudaeva said in an interview last week in St. Petersburg during the International Financial Congress.

The central bank, which in 2015 announced a goal of boosting reserves to $500 billion in the long term, hasn’t bought foreign currency for two years. It’s having a harder time juggling such factors as geopolitics and volatile oil prices after inflation quickened more than forecast in June, the first acceleration in 12 months.

“Reaching the inflation target in a sustained way is our top priority, but the task with reserves isn’t,” Yudaeva said. “In fact, its implementation can contradict other tasks, related to reaching the inflation target.”

The central bank spent about a fifth of its international reserves to prop up the ruble during a crisis in 2014 before allowing the currency to trade freely. It bought about $10 billion between mid-May and late July 2015, halting operations when the ruble’s decline started to accelerate. 

The central bank’s stockpile of foreign currency and gold was $412.6 billion as of July 14, down by about a third from its 2008 peak.

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The Bank of Russia won’t boost its reserves at the expense of inflation because the goal isn’t only to tame it to 4 percent but to keep it there for a long period of time, Governor Elvira Nabiullina said last month.

The resumption of purchases may pressure the ruble and create additional threats for price growth, which reached 4.4 percent from a year earlier last month. The Russian currency is the third-worst performer in emerging markets over the past three months with a decline of more than 4 percent against the dollar. It was little changed at 58.9125 versus the U.S. currency as of 10:53 a.m. in Moscow.

“We didn’t mean to say that as soon as inflation reaches 4 percent, then the next day we’ll start interventions,” Yudaeva said.

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