Updated December 25th, 2023 at 10:12 IST
Russian Central Bank signals forex purchases if oil approaches $88-$90 per barrel
President Vladimir Putin implemented mandatory sales of foreign exchange proceeds for certain exporting companies in October to stabilize the rouble.
Russia's central bank governor, Elvira Nabiullina, revealed that the central bank is poised to initiate foreign currency purchases if oil prices climb to the range of $88-$90 per barrel. The strategic move is contingent on the fluctuating dynamics of global oil prices, with Nabiullina stressing the pivotal role of oil in determining the central bank's net position in the foreign exchange (forex) market.
Nabiullina explained that while the central bank plans to sell foreign currencies in January, the exact volumes of these sales will be disclosed soon. In August, the central bank had temporarily halted forex purchases until the year-end to alleviate pressure on the Russian rouble, which had witnessed a significant decline, breaching the 100-mark against the US dollar in August and September. The rouble has since recovered and was trading around 92 on Monday.
"The question of whether we are a net (forex) seller or a net buyer depends largely on the price of oil," Nabiullina said in an interview. Brent oil futures settled at $79.07 per barrel on Friday.
President Vladimir Putin implemented mandatory sales of foreign exchange proceeds for certain exporting companies in October to stabilize the rouble, which had touched over 18-month lows against the dollar. These mandatory forex sales are in effect until March 2024. Nabiullina expressed the view that this measure should be temporary, and she does not anticipate abrupt changes on the forex market when it expires.
Addressing future monetary policy decisions, Nabiullina highlighted that the central bank would require two to three months to ensure a steady decline in inflation before contemplating any adjustments to interest rates. This cautious approach underscores the central bank's commitment to maintaining economic stability amid changing global and domestic conditions.
Investors and market observers will closely monitor oil price movements, as they have become a key factor influencing Russia's central bank's forex activities and overall economic strategy. The potential shift in forex dynamics underscores the delicate balance between economic considerations and external market variables in shaping Russia's financial landscape.
(With Reuters inputs)
Published December 25th, 2023 at 10:02 IST