Yesterday, the Ministry of Finance was a big newsmaker. In the evening, it issued a statement saying that on 20 February it would start FX purchases for the Reserve Fund, with the amount of daily operations set at USD 100mn. In total, MinFin plans to buy the equivalent of RUB 212.2bn, so the plan is to finish purchases by the end of May. Separately, the CBR has issued a statement about the adjustment to the FX interventions mechanism. Predictably, the CBR is cutting the volume of daily target interventions by USD 100mn. However, it would count Treasury’s operations as a part of cumulative interventions, so the pace of the BASKET’s band adjustment would not change. The only difference is that now the regulator would shift the band, when it sells USD 250mn in the market, while the Treasury would buy the remaining USD 100mn.
The knee-jerk reaction in the exchange was predictably negative: after the announcement, USDRUB moved up 15 kopeks to 35.45. Overall, RUB lost 0.6% to USD (35.44) yesterday and 0.8% to the BASKET (41.44). Hence, once again RUB was one of the worst performing currencies. However, the news about FX purchases is unlikely to be a big surprise for the market, given that on Thursday Deputy Minister of Finance Alexei Moiseev had already hinted that the government was to announce the amount of purchases for the Reserve Fund this week. Nevertheless, we still think that the news is negative for sentiment on RUB and FX is likely to overshoot, even though the amount of daily purchases looks relatively small.
On the other hand, MinFin’s initiative with FX purchases in the open market is positive for banking liquidity as the Treasury would, basically, inject RUB 212bn of liquidity. Alternatively, under the current market conditions it would be better to say that the CBR would sterilise RUB 200bn less during the coming months compared with the current FX interventions. At the same time, we think NDF rates might react negatively to the FX weakening, despite the fact that the overnight FX swap would remain near or below 6.0%. The IRS would likely be more resilient to the FX volatility while benefiting from a potentially better situation with liquidity, so the basis might narrow. Meanwhile, we still think that favourable seasonality could underpin a stronger RUB. We highlight that exports have remained on the side lines recently, but with the beginning of the February tax period, the hard currency offer from exporters would likely increase. We keep our forecast of 36.00 for USDRUB at the year-end.