CBR stopped buying FX due to increased ‘volatility’; further rate cut is expected tomorrow

RUSSIA ENERGY / FINANCE - In Brief 30 Jul 2015 by Marcel Salikhov

Since June 28th CBR stopped its regular purchases of FX to replenish its reserves. Purchases have started since mid-May at the rate of $200 mln per day. Till the end of July CBR bought about $10 bln on the open market. Purchases raised concerns about the need to create additional demand for hard currency in current circumstances and compatibility with inflation targeting regime. CBR officials claimed that additional reserves are necessary for long-term financial stability and inflationary effect of extra liquidity is counterweighed by decrease in other refinancing operation. But RUB/USD crossing 60 level forced CBR to withdraw regular purchases, at least temporarily. The news gave some support for RUB yesterday. No FX interventions don’t mean that CBR is ready to ‘defend’ 60 RUB/USD level but it shows concern over recent currency depreciation. CBR’s Board of Directors is expected to cut key rate 50 b.p. at tomorrow’s meeting in line with market expectations. We do not think that monetary authorities are ready to stay still to support RUB. Recent inflation data shows zero growth rates but since July prices increased 0.9% m-o-m on the back of increase in regulated tariffs and prices. Extra inflationary pressure due to RUB depreciation can lead to changes in monetary stance in next meeting. RUB/USD and CBR's FX interventions, 02/06/2014 - 28/07/2015

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