Russia Boosts Currency Buying Spree as Oil Revenues Rise

Russia’s Finance Ministry is set to increase its daily foreign currency purchases significantly, a move that could weaken the ruble despite a boost from rising oil revenues. From October 7 to November 6, the ministry plans to buy 279.4 billion rubles ($3.30 billion) worth of foreign currency, equivalent to 12.7 billion rubles ($149.9 million) per day. This is more than six times the current net purchases of 1.9 billion rubles ($22.4 million) daily.

Analysts suggest that while higher oil prices are driving these purchases, the ruble may still face pressure. Economist Yegor Susin estimates that the increased purchases could weaken the ruble’s average monthly exchange rate by 2 to 3 rubles (2.4 to 3.5 U.S. cents) per dollar. Yaroslav Kabakov, director of strategy at brokerage Finam, described the ministry’s increased purchases as the main factor favoring a weaker ruble.

The rise in oil prices, which averaged $92.10 a barrel in September, has boosted Russia’s mineral extraction tax and oil and gas revenues. The Finance Ministry expects these revenues to exceed the baseline set under the fiscal rule by almost 290 billion rubles ($3.42 billion). However, the support for the ruble from higher export earnings will take time to materialize, with a lag of 1.5 to two months.

Analysts at Vector Capital noted that exporters’ foreign currency earnings remain high and should soften the pressure from the ministry’s purchases. Still, the timing of these competing flows could produce volatility. Yuri Kravchenko, head of money market analysis at Veles Capital, warned that the gaps between changes in oil prices, the receipt and sale of export earnings, and government currency operations could cause sizable swings in either direction.