​Minfin is back as an FX buyer

RUSSIA ECONOMICS - In Brief 13 Jan 2021 by Alexander Kudrin
Today, the Finance Ministry announced that it resumes purchasing of the hard currency on the open market according to the “fiscal rule”. From Jan 15 till Feb 4 it will spend R7.1 bln daily for this purpose. To remind, the rule was working in the opposite direction for the last 8 months, since April 2020. During this period, the Finance Ministry sold hard currency from the National Wealth Fund worth almost R900 bln. On the one hand, it allowed to balance demand on the FX market, on the other --- it had some negative effects on the money market, such as liquidity absorption. The mentioned announcement was not a surprise given the strong performance of the oil price and hence the market reaction was moderate (RUB has moved from R/$73.50 to 73.75).If the oil price remains strong, then the Finance Ministry will continue to buy hard currency in the coming months, which will have a positive impact on Ruble liquidity. Despite the December spending spree money market conditions are relatively tight so that RUONIA stayed above the key rate most recently, which forces banks to borrow more from CBR. For example, they raised R1.1 trln on a 1-month REPO auction, which was held on Monday versus R0.8 trln in the entire December. Besides, banks started to use more actively lending facilities backed by non-tradable assets, which reached R0.5 trln yesterday. However, the execution of postponed (from 2020) budget expenditures likely to have stronger positive implications for the money market as additional liquidity will be added in the near future.Evgeny GavrilenkovAlexander Kudrin

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