The Russian Ministry of Finance will increase foreign currency purchases by 44%

The Ministry of Finance is set to allocate almost 399 billion rubles in October for the purchase of foreign currency.

Last month's amount will be 56% less than the planned amount.

Purchases will not take place until the end of the year.

Sberbank had previously cautioned that the implementation of the new budget rule could lead to a "self-induced" depreciation of the ruble.

The Russian Ministry of Finance announced on Wednesday that it will be allocating 398.72 billion rubles for the purchase of currency and gold, with 18.12 billion rubles being spent each day. This is in accordance with the updated fiscal rule that will be in effect from October 6 to November 7.

From September 7 to October 5, the amount of money spent on foreign currency purchases was 276.16 billion rubles, or an average of 13.15 billion rubles per day. This is a 44% increase from the previous month.

The Bank of Russia has decided to suspend the transmission of foreign currency purchases to the domestic foreign exchange market from August 10 until the end of this year in order to reduce the volatility of financial markets. As a result, purchases will not be made yet.

In August of 2022, the Russian Ministry of Finance restarted their currency purchases on the domestic market as part of the fiscal rule, due to the increasing oil prices and oil and gas revenues. These purchases had been halted at the start of the year.

SberCIB cautioned that the implementation of the new budget rule could have a detrimental effect on the ruble exchange rate. Instead of using the price of a barrel of Urals oil in US dollars as the "trigger" for buying or selling foreign currency, the forecasted volume of oil and gas revenues in rubles is being taken into account.

This mechanism suggests that a decrease in the value of the ruble will result in a higher projected income. This, in turn, will require the Ministry of Finance to buy foreign currency on the open market, which will further weaken the ruble.

The exchange rate could be stabilized by changing the projected income from rubles to yuan, which would prevent the "self-heating" spiral of ruble weakening.

Experts interviewed by RIA Novosti believe that the Central Bank and the Ministry of Finance of the Russian Federation can take a range of measures - from verbal interventions to currency and capital flow restrictions - to help keep the national currency exchange rate at the round mark of 100 rubles per dollar.