(Bloomberg) -- The Bank of Russia said it’s halting purchases of hard currency in a bid to ease pressure on the ruble, which has slumped amid tensions over Ukraine.
Policy makers are suspending buys of foreign exchange on the open market in order to “reduce financial market volatility,” according to a website statement. The central bank conducts the transactions for the Finance Ministry as part of Russia’s fiscal rule, which is aimed at reducing the economy’s exposure to fluctuations in oil prices.
Read More: Ukraine Risk Roils Treasuries to Commodities as Tensions Rise
The latest pause comes amid mounting tensions with the West over Russia’s troop buildup near the border with Ukraine. The last time the central bank halted the buying was over two years ago, when the covid pandemic was first spreading, hobbling markets globally.
While President Vladimir Putin has repeatedly said that Russia has no plans to invade, local markets took a fresh leg lower on Monday after the U.S. ordered family members at its embassy in the Ukrainian capital to leave.
“The central bank doesn’t want regular FX purchases linked to the budget rule to be an additional source of the selling pressure on the ruble,” said Piotr Matys, a senior currency strategist at InTouch Capital Markets Ltd. in London.
“Unless investors witness concrete steps to de-escalate and Russia withdrawing or at least reducing its troops at the border with Ukraine, the path of the least resistance should remain to the upside in USDRUB ,” he said.
The Russian currency pared losses after the announcement, trading down 1.9% at 78.68 per dollar as of 4:36 p.m. in Moscow, still the steepest slump in emerging markets on the day.
At times when oil prices are high, the central bank buys foreign currency for its reserves. Purchases have been running at the equivalent of 36.6 billion rubles ($463 million) a day. Rebounding commodity prices have seen central bank reserves, which include the government’s wealth fund, swell to more than $600 billion.
(Updates with analyst comment, background from fourth paragraph)
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