The Central Bank announced the start of FX interventions related to NWF investments, in addition to the fiscal rule

(Added details, Central Bank comments, analysts’ statements)

MOSCOW, July 21 (Reuters) – From August 1, 2023, in addition to regular interventions under the fiscal rule, the Bank of Russia will start buying/selling foreign currency related to investing funds from the National Welfare Fund (NWF) in financial assets denominated in rubles, the regulator said on Friday.

The volumes of the Central Bank will be assessed once every six months, and the operations themselves will be carried out on the Moscow Exchange in the instrument “Chinese yuan – ruble” in the next six months with a shift of one month.

From January 1 to June 30, 2023, the volume of net operations of investing funds from NWF in eligible financial assets amounted to 288.4 billion rubles, the Central Bank reported. Thus, from August 1, 2023 to January 31, 2024, the daily sales of the yuan will amount to 2.3 billion rubles ($25 million at the current exchange rate).

The central bank also set a limit on such transactions of 300 billion rubles for six months, “taking into account the liquidity of the domestic foreign exchange market.” If your investment exceeds this limit, your balance will carry over for the next six months.

The actual daily volume of net operations of the Bank of Russia in the foreign exchange market will be determined by the balance of two values: the volume of regular operations according to the budgetary rule and the volume determined by the volume of investments from the NWF, the Central Bank wrote.

Under the fiscal rule, Russia is now selling Chinese yuan from its sovereign wealth fund to compensate for shortfalls in oil and gas revenues. In July, the Ministry of Finance halved daily sales to 1.7 billion rubles ($19 million). The ministry will announce the amount of intervention next month on August 3.

Of the nearly 300 billion rubles of NWF funds allocated since the beginning of the year for infrastructure projects and support for individual companies, 60 billion rubles went to the Internet company VK (former Mail.ru Group), 35 billion rubles to NLK-Finance, a subsidiary of the insurance company NSK, created to insure the risks of the aviation industry and air carriers in connection with sanctions. In addition, 86.9 billion rubles were invested in shares of DOM.RF, 10 billion rubles – in preferred shares of Russian Railways.

GOOD NEWS FOR THE RUBLE?

Some analysts associated the Central Bank’s decision with the desire to stop further weakening of the ruble.

The “physical meaning” of this decision is understandable and should only be welcomed – transactions with the foreign currency assets of the Social Welfare Fund should always be transmitted to the market. But questions, as always, to timing – why is it being adopted only now? Perhaps because the ruble weakened only from April to May … although the funds of the Social Welfare Fund have been actively used since last year, “wrote the investment director of Loko-Invest, Dmitry Polevoy.

“The central bank cannot influence decisions on the budget, and at least the inflationary risk from the budget/exchange rate will be lower,” he added.

“Very good news for the ruble!” said Yevgeny Suvorov, economist at CentroCreditBank and author of the MMI telegram channel.

The head of the Central Bank, Elwira Nabiullina, said that the intention of the Central Bank to reflect the operations of depositing funds from the NWF is not aimed at influencing the ruble exchange rate.

»When it was decided that part of the NWF would be allocated to investments, it was announced that these expenses would be reflected. Then, due to a number of circumstances, it was suspended. We believe it is time to return to this practice. It is not intended to influence the ruble exchange rate,” she said at the briefing.

Meanwhile aggressive

promotion

CBR rates on Friday, combined with the regulator’s decisions to increase FX interventions on the market,

minimum

impact on the ruble. (Daria Korsunskaya, Elena Fabrichnaya)