MOSCOW: The rouble fell to record lows on Wednesday after news the finance ministry plans to buy nearly $6 billion in foreign currency on the market in coming months, decreasing the central bank's daily foreign exchange interventions.
The ministry said on Tuesday it will buy $100 million each trading session via the central bank between Feb. 20 and May 31 to replenish one of its sovereign wealth funds.
At 0605 GMT, the rouble hit an all-time low versus the euro, trading 0.3 percent down on the day at 48.96. It fell 0.4 percent to 35.57 against the dollar, its weakest since 2009.
That pushed the rouble to a new low of 41.55 against the dollar-euro basket the central bank uses to gauge the currency's nominal exchange rate.
While worsening violence in Ukraine is likely to pressure sentiment on financial markets in the region, analysts said trade in the rouble was being driven by the finance ministry's plan.
"The news is negative for sentiment on the rouble and the FX is likely to overshoot, even though the amount of daily purchases looks relatively small," analysts at VTB Capital wrote in a note.
According to a statement from the central bank, the ministry's purchases mean that the bank will cut the volume of daily target interventions by $100 million.
The rules for shifting the rouble's trading band will remain unchanged.
Under the central bank's managed float, the rouble trades within an established corridor, which as of Tuesday stood at between 34.80 to 41.80 roubles against the basket.
The central bank increases interventions as the rouble approaches the boundary of the corridor. Once an intervention allotment of $350 million is exhausted it automatically shifts the corridor.
The central bank will count the finance ministry's operations as a part of cumulative interventions, so the pace of the basket's band adjustment would not change, VTB said.
"The only difference is that now the regulator would shift the band, when it sells $250 million in the market, while the (ministry) would buy the remaining $100 million (from the central bank)."
Dmitry Polevoy, chief economist for Russia at ING in Moscow, reckoned rouble weakness on the back of the ministry's announcements may be short-lived.
"The central bank/finance ministry announcements may well keep weakening momentum in the rouble, but, at the same time, the uncertainty about the finance ministry's actions is now removed, which had been fuelling short-rouble bets," Polevoy said in a note.
Stocks also traded lower, with the RTS index down 0.9 percent at 1,331 points and the MICEX down 0.1 percent at 1,502 points.
Comments
Comments are closed for this article.