Maxim Oreshkin, the Head of the Ministry of Finance’s long-term strategic planning department, has said that the conversion of RUB 500bn (USD 8.01bn), the amount that the government plans to spend from the Reserve Fund this year, will be finalised by the end of the week, Reuters reports.
The conversion is to be executed directly within the balance sheet of Bank of Russia and will not include open market operations.
MinFin is taking action on the announcement made on 14 January by Deputy Minister Alexey Moiseev. The conversion is to take place on the CBR’s balance sheet and will not have any side-effects on the FX market. To reiterate, the conversion of part of the Reserve Fund will not decrease the size of the CBR’s international reserves as it is an operation which only affects the currency composition of the CBR’s liabilities.
As MinFin announced its intention to place the received roubles on deposits in the banking sector, we expect a marginal decline of short interbank rates due to the declining utilisation ratio of the collateral. The effect is to be neutral for the exchange rate.
We estimate a marginal effect on interest rates, as the placement of deposits is to be coordinated with the CBR. The latter then adjusts the supply of liquidity in order to offset the effects of liquidity provision by the Ministry of Finance.
There is also a possibility of the CBR mirroring operations conducted on its balance sheet with MinFin directly with FX sales on the open market.