Russia’s central bank says no further intervention to support rouble
Russia’s central bank said it is seeking to support the rouble without burning through foreign-currency reserves, telling reporters on Friday that its dollar sales since March have been aimed only at stabilising markets.
The central bank has sold more than $2bn in reserves since March, and on Friday, central bank president Elvira Nabiullina said it would continue daily sales throughout April, with the additional possibility of cutting interest rates.
She insisted, however, that the central bank is not seeking to control the level of the rouble.
“We are not trying to affect exchange rates in any way through our currency market transactions, whether we are buying or selling forex,” she said. “Our volumes have nothing to do with the exchange rate.”
The rouble has been hit hard since the collapse in oil prices last month, with the dollar reaching a high above Rbs80 in recent days — around the levels it hit when oil prices dropped in early 2016. It is the world’s third-worst performing emerging-market currency during the coronavirus crisis.
“A rouble rate near 80 to the dollar is quite psychologically sensitive — it’s close to the previous records,” said Sofya Donets, chief Russia economist at Renaissance Capital. “If the rouble weakens further, it could make markets more jittery,” she said, adding that it could also prompt Russians to switch rouble accounts into dollars.
Russia switched to a free float for the rouble in 2014 after spending $60bn from its reserves in a failed attempt to prop up the currency when it halved in value against the dollar after the country annexed Crimea. The move has boosted Russia’s budget by increasing the revenue it gets from selling commodities in dollars.
Under a budget rule introduced in 2017, Russia has accumulated an additional $150bn safety net by saving surplus oil and gas revenues, above a cut-off price of $42 per barrel, in a national wealth fund. Were the measures not in place, the rouble would likely be trading closer to 90 to the dollar, said Ivan Tchakarov, chief Russia and CIS economist at Citibank.
“We don’t see for now anything similar to the situation in 2014,” Mr Tchakarov said. “In simple quantitative terms, the rouble depreciated by more than 100 per cent in that period, while everything that we have seen in this crisis episode is just 25 per cent decline.”
The double hit from the coronavirus and oil price shocks has battered Russia’s economy, which is expected to struggle further after President Vladimir Putin on Friday ordered all businesses except for grocery stores and pharmacies to close throughout April.
“At this pace, Russia will have about 30 months or so of funds in the National Welfare Fund to compensate for lower oil revenues. To put it differently, Russia can pretend that oil prices are at the cut-off oil prices of about $42 for almost three years and spend like that,” Mr Tchakarov said.