Bank of Russia to sell foreign currency after ruble wipeout

Bloomberg

The Bank of Russia said it would begin selling foreign currency ahead of schedule after the rout in oil prices made the ruble the worst-performing currency in the world.
The move is aimed at “increasing the predictability of the actions of the monetary authorities and reducing volatility on financial markets amid significant changes in the world oil market,” according to a website statement. The ruble sank 5.8% versus the dollar when local trading reopened after a public holiday.
Russia’s policy makers are preparing for a period of protracted low oil prices after the Kremlin embarked on a price war with Saudi Arabia to avoid cutting production. The Finance Ministry said that the country’s $150 billion National Wellbeing Fund could help the budget withstand a decade of crude prices as low as $25 per barrel.
The Finance Ministry said it would start to sell foreign currency if oil prices stay below $42.40 per barrel, the cutoff level for the fiscal rule that’s helped stabilise the ruble. But that buying wouldn’t normally have started until next month. The central bank said it will be selling foreign exchange immediately from its own reserves and is ready to use additional tools to maintain financial stability.
Until Tuesday, the central bank had been regularly buying foreign currency on behalf of the Finance Ministry for the government’s rainy-day fund. If oil prices stay below the $42.40 cutoff price, the ministry will be selling from that fund to raise money to pay for budget spending.
The ruble was already down 10% in the year as the coronavirus spurred a flight from risky assets. Russian local-currency bonds had been a favourite among emerging-market investors in 2019 as bondholders put aside concerns about US sanctions and focused instead on the country’s half a trillion dollars of reserves and one of the lowest debt burdens among major economies.