Rate of capital has significant impact on the exchange rate

17 september 2018 | Rossiyskaya Gazeta

Having unexpectedly raised the key interest rate, the Bank of Russia has also significantly increased the projected rate of inflation and refused to purchase foreign currency for the Ministry of Finance in the open market until the end of the year. "The total deferred purchases may amount to RUB 1.3 trillion or about USD 19.6 billion at the current exchange rate," Analytical Center expert Daniil Nametkin commented on the situation for Rossiyskaya Gazeta.

Daniil Nametkin
Daniil Nametkin
Department for Expert Analytics

The expert does not think this decision will have major effect on the FOREX market but it will in all probability have a psychological effect.

In January-July, the average daily purchases of foreign currencies made by the Bank of Russia under the budget rule amounted to RUB 14.6 billion. These purchases were in effect stopped on August 24. The average daily trades for RUB/USD with deliveries on the same day in August-September were about RUB 250 billion, which is significantly higher than the trades made by the Bank of Russia, Mr. Nametkin noted.

"The exchange rate is going to be affected much more by the rate of capital flight as there is no carry trade strategy in the bonds market and specifically in the federal bonds market," the expert believes.

According to Head of the Bank of Russia, the share of non-residents in the market of federal bonds has went down from 34.5% prior to the April set of sanctions to 26.6% by early September. Since April, the amount of federal bonds held by foreign investors has gone down by RUB 480 billion.

Source: Rossiyskaya Gazeta

Photo: from open sources