The Russian state's resumption of foreign currency purchases after many months should not increase forex market volatility, the head of the Moscow Exchange said. The central bank will resume daily purchases of foreign currency for the state reserves on the exchange on Jan. 15, a move that has already put pressure on the rouble since it was announced in late November and one that is likely to limit room for the currency to strengthen.
Igor Marich, managing director of the Moscow Exchange's money and derivatives market, told Reuters that the market may already have priced in the change. "Quite opposite (to market concerns), the central bank's operations under the finance ministry's budget rule lead to lower market volatility," Marich told Reuters in comments cleared for publication on Friday.
Other financial market authorities also say no spike in volatility is expected after the central bank resumes forex buying for first time since August, in what appeared to be an attempt to calm markets. In order to withstand "extraordinary volatility", the Moscow Exchange developed an emergency market tool as requested by the central bank after the rouble's notorious drop in December 2014, Marich said.
This tool, a discrete FX auction, should allow market players to close transactions directly with the central bank if main trading is halted in order to limit excessive moves in the rouble rate. "For the discrete auction to be launched, some extraordinary volatility is required, the scale of Dec. 16, 2014, for example," Marich said.
On that date, the rouble hit an all-time low of 80.10 versus the dollar, losing more than 19 percent of its value in just one day at the peak of that sell-off. Recent slides in the rouble were nowhere near that collapse, driven by panic ditching of the rouble amid falling oil prices and Western sanctions.
In April 2018, when the United States imposed new sanctions against the companies of Russian tycoon Oleg Deripaska, including aluminium giant Rusal, the rouble's intraday losses mounted to 5 percent.
Though the Moscow Exchange has never used this tool to stabilise the rouble, the need for it could possibly emerge given risks from geopolitical tensions with the West and volatile oil prices. The central bank declined to say if it was considering discrete auctions to smooth out any rouble volatility due to the resumption of state forex buying.
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