The Central Bank has stopped buying foreign currency and stopped the weakening of the ruble. What it means

The Bank of Russia stopped the weakening of the ruble by announcing the cessation of currency purchases until the end of the current year. After this decision, the ruble strengthened by more than 4%. How the national currency is regulated, what will happen to it next and how to save money now - in the analysis of Izvestia.

What the Central Bank has announced

- From November 28 and until the end of 2024, the Bank of Russia will not buy foreign currency on the domestic market, as it did in the framework of mirroring the operations of the Ministry of Finance of the Russian Federation to implement the budget rule. The regulator bought foreign currency for the National Welfare Fund (NWF) using the funds received from the sale of raw materials in excess of the Br8 trillion annual limit set by the Ministry of Finance. The purchase volume amounted to Br4.2 billion per day.

- At the same time, the Central Bank will continue to conduct its own foreign exchange operations, within which it sells foreign currency in the amount of Br8.4 billion daily. This volume is determined until the end of 2024.

- Depending on the situation on the financial markets, the Central Bank will decide whether to resume foreign currency purchases. The purchases postponed during this time will be carried out in 2025. The regulator did not specify what mechanism will be used for this purpose.

- In 2023, the Bank of Russia also decided to stop buying foreign currency in order to strengthen the ruble. The measure was in effect from August 10 to the end of the year. Then the volume of purchase amounted to 1.8 billion rubles per day.

What the Central Bank wants to achieve

- According to the Central Bank's statement, the decision was made to reduce the volatility (i.e. variability. - Ed.) of financial markets. It should be understood that the Central Bank does not want the ruble exchange rate to rise or fall sharply. This causes difficulties in planning the budgets of different companies, including importers that provide the inflow of goods.

- Volatility causes uncertainty about the national currency, which is materially transferred to buyers of goods in the form of price increases. Against the background of the current inflation rate, which exceeds the values set by the Central Bank, this is of particular importance.

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- Volatility in general negatively affects the emotional state of the population and creates an alarming information background. Experts admit that the fall of the ruble on November 27 was caused by the emotions of investors, who have not decided on the reaction to the sanctions against Gazprombank - potentially this measure reduces the inflow of foreign currency. When a solution is found, the currency market will stabilize.

- A day later, the Central Bank's measures yielded the first results. In international trading, the ruble exchange rate strengthened by more than 4% and took a downward trend. This should first of all affect the population, so that they do not panic buying currency, which is not recommended by the expert community. In order to save their funds, it is more expedient to put them in a savings account than to invest them in a currency that is also subject to inflation.

Will the Central Bank of Russia influence the exchange rate in the future?

- The Central Bank's decision to suspend the purchase of foreign currency can be called belated. The regulator was taking actions that directly weakened the exchange rate of the national currency. At the same time, it happened against the background of the fact that there were negative trends for the Russian economy and the ruble, which already led to its gradual weakening.

- The fact that the ruble exchange rate was subject to a number of negative factors was indicated to the Central Bank by the absence of any reaction of the national currency to the increasing key rate. Thanks to it, money should have become more expensive and the ruble should have strengthened, but it did not happen. The ruble exchange rate weakened under the pressure of other phenomena that the Central Bank did not notice and could not influence.

- At present, the negative background for the ruble is determined by falling oil prices and opportunities to sell Russian products on the world market. This background includes Europe's refusal to buy Russian gas, sanctions against Gazprombank and the upcoming US trade war with the European Union and China, which will weaken their demand for energy resources.

- Another indicator determining the ruble exchange rate is the sale of foreign currency earnings by exporters. This parameter is regulated by decrees of the Russian President. The Central Bank has the opportunity to suggest toughening the sale parameters, so that exporters keep less currency for themselves, and the rest of it on the foreign exchange market, increasing the supply.

- The Central Bank's statement that in 2025 it will still carry out purchases postponed until the end of December may have a negative impact on the ruble exchange rate. In the near future, the negative phenomena outside the competence of the regulator will continue to exist and may even intensify depending on what Russian export earnings will end up being.

In preparing the material, Izvestia spoke with and took into account the opinions of:

• economist, director of the Institute of New Society Vasily Koltashov;
• economist, investment expert Alexander Bystrov.