Russia to Resume Major Forex Purchases as Oil Revenues Surge After Middle East Conflict
Russia's Return to Forex Market Amid Rising Oil Revenues
Background: Suspension and Resumption of Forex Purchases
MOSCOW, May 6 (Reuters) - Russia will buy foreign currency on the market in the coming month for the first time since before the start of the war in Ukraine, according to a Finance Ministry statement, as windfall revenues start to arrive from high oil prices triggered by the U.S. war with Iran.
The Finance Ministry said it will buy 110.3 billion roubles ($1.46 billion) worth of forex, mostly Chinese yuan, from May 8 to June 4 for the National Wealth Fund, which is used to stabilise the budget. The move should also prevent the rouble from excessive strengthening.
Role of the Central Bank and Net Purchases
The central bank will carry out the purchases. When netted against the central bank's own operations, the state's net forex purchases will amount to 1.18 billion roubles a day compared to current sales of 4.6 billion roubles a day.
Mechanism: Russia's Budget Rule and Oil Price Impact
Under Russia's budget rule, the government buys foreign currency for the wealth fund with tax revenues collected when oil prices exceed a certain cut-off point, currently set at $59 per barrel.
If oil trades below that cut-off price, the government sells forex from the fund to cover the budget deficit. The ministry suspended operations for the fund in February amid low prices for Russian oil due to sanctions-linked discounts.
Strategic Decisions During Market Volatility
The decision to suspend the transactions was aimed at preventing the fund from depletion. However, when oil prices soared after the closure of the Strait of Hormuz after the U.S. and Israel attacked Iran on February 28, many analysts questioned the logic of the move, which kept the rouble overvalued.
Deferred Transactions and Market Impact
The ministry said earlier it would take into account deferred transactions for March, when it would have sold forex, and April, when determining May volumes. Deferred sales for March would offset purchase volumes, softening the market impact.
Recent Revenue Data and Market Context
Russian state oil and gas revenues fell 21.2% year-on-year in April to 855.6 billion roubles ($11.32 billion), according to finance ministry data published also on Wednesday, but were up from 617 billion roubles in March.
($1 = 75.6000 roubles)
(Reporting by Darya Korsunskaya; Writing by Gleb Bryanski; Editing by Mark Trevelyan)
