Russian central bank intervenes as ruble tumbles past 110 to the U.S. dollar

A pensioner counts Russian rubles in Donetsk, eastern Ukraine, April 1, 2015. THE CANADIAN PRESS/AP-Mstyslav Chernov

MOSCOW — Russia’s central bank said on Wednesday it would stop foreign currency purchases in order to ease pressure on the financial markets after the ruble weakened beyond 110 to the U.S. dollar, down by one-third since early August.

The central bank said it had decided not to buy foreign currency on the domestic market from Nov. 28 until the end of the year, but to defer these purchases until 2025.

“The decision was made to reduce the volatility of financial markets,” the regulator said in a statement. Since Russia was blocked from using the dollar and euro, it has made foreign exchange interventions using Chinese yuan.

Russia published new economic data on Wednesday highlighting the latest signs of overheating in an economy retooled for the purpose of fighting the war in Ukraine, which has sucked workers out of the labour force.

Real wages were up 8.4 per cent in September in year-on-year terms, unemployment hit a record low 2.3 per cent in October, and weekly inflation stands at almost 0.4 per cent, all despite a benchmark interest rate of 21 per cent.

By 1600 GMT, the ruble was down 7.25 per cent since the start of Wednesday’s trade at 113.15 to the dollar, according to LSEG data -- further fuelling inflation, which is running at around eight per cent a year.

It fell beyond 15 to the yuan, also the lowest level since March 2022, just after Russia’s invasion of Ukraine.

Under Russia’s budget rule, the finance ministry sells foreign currency from its rainy-day National Wealth Fund to make up for any shortfall in revenue from oil and gas exports, or makes purchases in the event of a surplus.

The ministry’s forex transactions are carried out by the central bank, which also conducts its own interventions.

The central bank said it would continue conducting its own yuan sales at the equivalent of 8.4 billion rubles a day, thereby increasing the Russian state’s net daily sales of foreign currency to the equivalent of 8.4 billion rubles from around 4.2 billion rubles.

Dmitry Pyanov, deputy CEO of Russia’s second largest lender VTB, said sanctions imposed by the United States on Russia’s third-largest lender, Gazprombank, which handles the energy trade, were behind the ruble’s sharp fall.

“My assumption is that the sanctions against Gazprombank have had a significant impact, as it has ceased to be a channel for delivering foreign currency to the Moscow Exchange,” Pyanov said.

He said the central bank should focus on stabilizing the currency market, which was not functioning properly now, within the next few days.

PSB Bank analysts said the decision would “moderately support the ruble, but it will not be enough to return the exchange rate to last week’s levels,” predicting that the market would stay volatile.

Ruble and share prices both falling steeply

The ruble’s fall has been compounded by a fall of more than 20 per cent in the stock market so far this year as investors shift their savings from stocks to deposits, which offer interest above the benchmark rate of 21 per cent.

Economy Minister Maxim Reshetnikov said the ruble’s volatility was due to global dollar strength and market concerns following the latest sanctions, not the result of fundamental factors, predicting that it would soon stabilize.

He said 82 per cent of Russia’s exports and 78 per cent of its imports were paid for in rubles and “friendly,” non-western countries' currencies.

Analysts said another measure that the government could use is forcing exporting companies to sell more foreign currency by raising mandatory sale requirements, though not all were convinced this would work.

“If exporters are unable to make transactions [due to sanctions], the requirement from the government for them to do so will not help the situation in any way,” economist Evgeny Kogan said.

The ruble’s fall is fuelling inflation, which is set to exceed the central bank’s estimate for this year, working counter to the regulator’s painful monetary tightening, with the benchmark interest rate at its highest level since 2003.

The central bank estimates that a 10 per cent fall in the value of the ruble adds 0.5 percentage points to inflation, implying that the fall of the last four months may be adding 1.5 percentage points to inflation.

All trade in dollars and euros moved to the over-the-counter market after western sanctions were imposed on the Moscow Exchange (MOEX). As a result, the trade has become volatile and opaque, with most banks disclosing data only to the regulators.

(Reporting by Gleb Bryanski and Alex Marrow; Editing by Ros Russell and Gareth Jones)