In a significant move to stabilize the financial markets, Russia’s central bank announced on Wednesday that it will halt foreign currency purchases after the ruble fell past 110 against the U.S. dollar, reflecting a one-third decline since early August. The bank has decided to cease these purchases on the domestic market from November 28 until the end of the year, postponing them until 2025.
The central bank stated that this decision aims to reduce market volatility. With restrictions preventing Russia from utilizing the dollar and euro, the country has been relying on the Chinese yuan for foreign exchange interventions. Recent economic data revealed growing signs of overheating in Russia’s economy, which has been adapted for wartime conditions in Ukraine, leading to a decrease in the labor force.
In September, real wages increased by 8.4 percent year-on-year, and unemployment dropped to a record low of 2.3 percent in October, despite a high benchmark interest rate of 21 percent. By 1600 GMT on Wednesday, the ruble had fallen by 7.25 percent during the trading day, trading at 113.15 to the dollar, further exacerbating inflation rates that are currently around eight percent annually.
The ruble also depreciated beyond 15 to the yuan, marking its lowest value since March 2022, shortly after the Ukraine invasion. Under the country’s budget regulations, the finance ministry sells foreign currency from the National Wealth Fund to compensate for revenue deficits from oil and gas exports, or buys currency when there is a surplus. The central bank is tasked with carrying out these forex transactions as well as its own interventions.
Moreover, the bank stated it would maintain its yuan sales at the equivalent of 8.4 billion rubles daily, increasing the overall daily foreign currency sales to this amount from around 4.2 billion rubles.
Dmitry Pyanov, deputy CEO of VTB, Russia’s second-largest bank, attributed the ruble’s decline to sanctions imposed by the United States on Gazprombank, Russia’s third-largest lender, which has disrupted the flow of foreign currency to the Moscow Exchange. He emphasized the need for the central bank to stabilize the currency market promptly.
Analysts from PSB Bank noted that while the recent decisions may provide moderate support for the ruble, it is insufficient to restore the exchange rate to levels seen the previous week, predicting continued market volatility.
The drop in the ruble has also been mirrored by a more than 20 percent decline in the stock market this year, as investors shift their assets from stocks to deposits that offer higher interest rates than the current benchmark. Economy Minister Maxim Reshetnikov mentioned that the volatility of the ruble stems from the strength of the global dollar and concerns related to recent sanctions, rather than fundamental economic factors, and he anticipates a stabilization soon.
He pointed out that 82 percent of Russia’s exports and 78 percent of its imports are conducted in rubles and currencies from non-Western, friendly nations. Some analysts suggested that the government could compel exporting companies to sell more foreign currency by increasing mandatory sale requirements, although there are doubts about the effectiveness of such measures.
The depreciation of the ruble is contributing to inflation, which is expected to surpass the central bank’s projections for the year, countering the regulator’s efforts at monetary tightening, with interest rates at their highest since 2003. The central bank estimates that a 10 percent decline in the ruble’s value could add 0.5 percentage points to inflation, implying that the recent declines may have contributed an additional 1.5 percentage points to inflation overall.
