Russia bank may start buying forex if market volatility declines

The Russian Central Bank may return to purchasing foreign exchange for its reserves if market volatility declines, but there is no pressure to increase the US$370.2 billion stash, the bank's Governor Elvira Nabiullina said over the weekend.

The Russian rouble closed yesterday recording its best week against the dollar so far this year, spurring market speculation that the central bank may start buying foreign currency again to beef up its reserves and keep the rouble's firming at bay.

"We will see what happens in the market," Nabiullina told journalists on the sidelines of the semi-annual meeting of the International Monetary Fund and World Bank.

"If volatility declines then we will accordingly and carefully evaluate the situation and may return to replenishing gold and forex reserves."

The central bank bought US$10.12 billion between May and July for its reserves when the rouble was on a firming trend, but afterwards its fortunes reversed.

The recent rise in the price of oil, Russia's chief export, pushed the rouble into a rally this week.

But Nabiullina said that the central bank is under no pressure to beef up its reserves.

"We have a sufficient amount of reserves," she said. "There is no need to hurry."

She said she sees no threat to foreign exchange liquidity in the banking sector until the end of the year, but she said that for now the central bank will keep its forex repo operations and monitor the situation.

But the sector's structural, cumulative liquidity deficit has been improving rapidly this year, raising questions whether the central bank may increase the range of its liquidity sterilisation tools if the deficit turns around into a surplus.

Nabiullina said the deficit stands now at around four trillion roubles (US$64.72 billion), down from seven trillion roubles at the beginning of the year.

She said, however, that moving into surplus is unlikely even if the finance ministry delivers on its plans to spend 2.1 trillion roubles next year from one of its sovereign wealth funds, the Reserve Fund.

"If all develops according to our scenario, we will nonetheless remain in structural deficit of liquidity in the three years (2016-2018)," she said. "And we will not have to change (sterilisation) tools." – Reuters, October 10, 2015.


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