Russia’s Finance Ministry is set to significantly increase its foreign currency purchases in October, a move that could put pressure on the ruble. This decision comes as a response to higher oil prices, with the ministry planning to acquire 279.4 billion rubles (around US$3.3 billion) in foreign currency from October 7 to November 6, following the country’s fiscal rule. The net daily purchases will rise to 12.1 billion rubles, a substantial jump from the previous 1.9 billion rubles.
The backdrop for this decision is a surge in oil prices, which averaged US$92.10 per barrel in September, up significantly from US$67.10 in August. This increase is expected to boost government revenues from energy taxes, with oil and gas income anticipated to exceed the fiscal rule’s baseline by nearly 290 billion rubles. Consequently, these additional revenues might mitigate the impact of increased government currency purchases on the ruble.
Despite concerns that the government’s increased currency buying could weaken the ruble, analysts suggest that higher oil prices could simultaneously generate more foreign currency earnings for Russian energy exporters. These companies might sell a larger portion of their earnings to meet tax obligations, thus providing some support to the ruble.
However, the timing of government purchases, along with fluctuations in export revenues and tax payments, could lead to exchange-rate volatility. While there is a potential for the ruble to weaken against the US dollar, analysts generally do not predict a sharp decline. This is partly due to exporters holding substantial foreign currency earnings, which could help stabilize the ruble.
Ultimately, the ruble’s short-term performance will likely hinge on the interplay between government demand for foreign currency and the supply generated by oil exports and corporate tax payments. As these factors evolve, they will play a crucial role in shaping the currency’s trajectory in the coming weeks.
