Russia Rushes To Sell $1.5 Billion As Eurobond Payment Nears

(Bloomberg) -- Russia's central bank will offload 150 billion rubles ($1.5 billion) of foreign exchange in the domestic market, in what it said is a temporary acceleration of previously planned sales that should take some pressure off the ruble after one of the biggest depreciations among emerging economies.

The Bank of Russia said it may need to meet demand for hard currency from a repayment of Eurobonds this month and now plans to boost almost 10-fold its daily “mirroring operations” linked to investments from the government's wealth fund. It will sell 21.4 billion rubles worth of foreign currency per day during Sept. 14-22, according to a statement Wednesday. 

The announcement briefly helped the ruble, which has been depreciating since an emergency meeting on interest rates in August, extend gains versus the dollar. The Russian currency was down 0.2% versus the greenback as of 2:57 p.m. in Moscow.

Russia's $3 billion Eurobond is coming due on Sept. 16, according to the central bank. Although most holders will receive a payment in rubles, it said some of them may then seek out hard currency.

“Under these conditions, the decision to redistribute foreign currency sales as part of mirroring transactions related to investing” from the National Wellbeing Fund “will help meet possible additional demand for foreign currency and reduce volatility in the foreign-exchange market during this period,” the Bank of Russia said.

As the ruble came under intense selling pressure last month, the central bank announced it would refrain from foreign-exchange purchases for the rest of this year and then delivered a steep rate hike. 

What Bloomberg Economics Says...

“The Bank of Russia's decision does not address the root causes of the ruble rout: excessive policy rate cuts and outsized budget spending, which drive capital outflow and expansion of imports. The decision to sell yuan by the central bank may reduce volatility in the coming weeks, but is unlikely to break the depreciation trend.”

—Alexander Isakov, Russia economist. 

The Russian currency's brief plunge past 100 per dollar in August also revived a debate in Moscow about capital controls, with officials opting for informal measures to ensure enough foreign exchange is available in the domestic market.

The bulk of Russia's international reserves are frozen by US and European sanctions, leaving the yuan as the main asset the central bank can still use to conduct operations in the currency market.

The ruble is among the worst performers in emerging markets in 2023 after losing about a quarter of its value against the dollar. It's suffered from a deterioration in foreign trade amid a raft of international sanctions over the Kremlin's war in Ukraine. 

The central bank's decision is unlikely to be part of an effort to keep the ruble from weakening past 100 versus the greenback, according to Olga Belenkaya, economist at Finam in Moscow. Since it's now conducting operations in the Chinese currency, any impact on the ruble's exchange rate against the dollar will be indirect, she said.

“This is a very short-term measure, and by itself it cannot affect the ruble exchange rate for a long time,” Belenkaya said.

(Updates with ruble performance, central bank comments starting in third paragraph.)

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