The Central Bank of Russia announced Monday that it would resume foreign exchange market interventions in January with a modified formula to strengthen the ruble.
The ruble is recovering from a significant decline during the summer months. It has also been volatile since February 2022, coinciding with Russia's military operation in Ukraine and subsequent sanctions from the West.
In August, the central bank halted foreign currency purchases until the end of the year to avoid putting pressure on the ruble. It plunged past 100 to the U.S. dollar in August and September.
However, the currency has experienced a 14 percent upsurge since the beginning of October, as Moscow implemented currency controls, interest rate hikes and the suspension of foreign currency interventions.
The central bank will resume buying and selling foreign currency through its sovereign wealth fund, which is also referred to as the "budget rule."
Under the budget rule mechanism, the central bank purchases and sells Chinese yuan to stabilize the ruble, especially due to Western sanctions. The ruble's stability is highly affected by global oil prices and Moscow's earnings from significant energy exports.
If revenues fall below the set threshold, Russia will sell yuan from the National Wealth Fund (NWF) to compensate for the deficit in daily government spending. Conversely, when there's an excess, it will invest in yuan to augment the fund.
In addition, Russia uses the foreign currency from the NWF to offset any revenue shortfalls from oil and gas exports. Russia's Ministry of Finance will determine and publish the daily volume of these specific operations monthly.
The precise time frame for the central bank's interventions remained unclear, but it will announce the final daily net amount of its foreign exchange market operations in January 2024 in a press release at the end of December 2023.
The calculation will consider Russia's Ministry of Finance data on the use of NWF resources, NWF investments in ruble-denominated eligible financial assets, FX purchases postponed from August 10 to December 31 and the rainy day fund spending used to cover the government's 2023 budget deficit.
Dmitry Polevoy, Locko Invest's head of investment, approximated the postponed purchases at roughly 1.7-1.8 billion rubles ($19-$20.1 million) and the NWF spending for financing the budget deficit at 3.46 billion rubles.
Following the announcement, The ruble did not react on Monday, continuing to hover near a more than five-month high it hit last week.
Current ruble condition
On Wednesday, the Russian ruble rebounded from a more than one-week low against a globally weaker dollar, extending its gains for the seventh consecutive week.
The ruble strengthened 0.6 percent against the dollar to 88.89 at 0817 GMT, rebounding from its weakest close since November 20. It dipped in the previous session as a favorable tax period ended, prompting exporters to convert foreign currency earnings into rubles to meet local obligations.
Despite the temporary dip, the ruble finds support in elevated oil prices and the potential for further monetary tightening. The central bank also hiked its interest rates to 15 percent in late October.
Brent crude oil, a global benchmark for Russia's main export, fell 0.1 percent to $81.63 a barrel but rebounded from lows hit earlier this month.
The ruble also appreciated against other major currencies, gaining 0.5 percent to 97.71 against the euro and 0.2 percent to 12.46 against the yuan.
Meanwhile, Russian stock indexes closed mixed. The dollar-denominated RTS index rose 0.3 percent to 1,132.2 points, while the ruble-based MOEX Russian index remained unchanged at 3,195.7 points.