Deputy Minister of Finance Alexey Moiseev commented that MinFin was considering to purchase foreign currency for the Reserve Fund and the National Welfare Fund from the local FX market directly, not from the CBR. Even though no final decision has been made yet.
We believe that increasing domestic banks’ holdings of local bonds in the coming years will not be enough to cover all of the banking system’s refinancing needs. The only market big enough for outright asset purchases is the FX market. Hence, we believe that outright FX purchases by MinFin might limit its impact on liquidity. MinFin might start a gradual conversion of the Reserve Fund and the National Welfare Fund on the open market into foreign currency next year, but there is a possibility that this could happen earlier to help smooth tight liquidity conditions in autumn 2013. The actual result of such outright purchases would be a new equilibrium on the FX market, with a weaker RUB, while the liquidity situation in the banking system would become dependent on CBR activity.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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