BOFIT Viikkokatsaus / BOFIT Weekly 2018/35

Since the beginning of 2017, the Central Bank of Russia has purchased daily a pre-announced amount of foreign exchange on behalf of the finance ministry. Under the government's current fiscal rule, excess tax revenues from oil & gas going to the federal budget (this year excess revenues will accrue when Urals crude is above $40.80 a barrel) will be transferred to the National Welfare Fund. As a rule, the liquid assets of the National Welfare Fund are invested in forex assets. As rising oil prices and ruble depreciation have increased budget revenues, the daily amounts CBR has been buying on behalf of the finance ministry have increased.

Earlier CBR buying suspensions have only lasted a few days. The current announcement calls for an exceptionally long suspension till the end of September. The CBR says the measure is intended to dampen increased volatility on financial markets and enhance the predictability of monetary authorities' actions. Finance ministry representatives, however, assert the fiscal rule will be strictly followed and the CBR will continue to provide the agreed amount of forex from its own reserves.

Some market observers have noted that the measure could slightly support the ruble's exchange rate, although any large impact is unlikely. The ruble-dollar rate has fallen about 8 % since the beginning of August.