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Bank of Russia to sell foreign currency after plunge in oil prices

The move is aimed at reducing volatility on financial markets amid significant changes in the world oil market

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Russia's policy makers are preparing for a period of protracted low oil prices after the Kremlin embarked on a price war with Saudi Arabia to avoid cutting production.

Moscow

THE Bank of Russia said it would begin selling foreign currency on Tuesday ahead of schedule after the rout in oil prices made the rouble the worst-performing currency in the world.

The move is aimed at "increasing the predictability of the actions of the monetary authorities and reducing volatility on financial markets amid significant changes in the world oil market", said a statement on the website.

The Russian rouble sank 5.8 per cent versus the dollar when local trading reopened after a public holiday.

Russia's policy makers are preparing for a period of protracted low oil prices after the Kremlin embarked on a price war with Saudi Arabia to avoid cutting production.

The Finance Ministry said Monday that the country's US$150 billion National Wellbeing Fund could help the budget withstand a decade of crude prices as low as US$25 per barrel.

The ministry too said it would start to sell foreign currency if oil prices stay below US$42.40 per barrel, the cutoff level for the fiscal rule that has helped stabilise the rouble.

But that buying would not normally have started until next month. The central bank said it will begin selling foreign exchange immediately from its own reserves and is ready to use additional tools to maintain financial stability.

Until Tuesday, the central bank had been regularly buying foreign currency on behalf of the Finance Ministry for the government's rainy-day fund.

If oil prices stay below the US$42.40 cutoff price, the ministry will be selling from that fund to raise money to pay for budget spending.

Brent crude oil clawed back some of its 24 per cent loss Monday, rising to US$36.28 in early trading Tuesday.

The Russian rouble was already down 10 per cent in the year through Friday as the novel coronavirus spurred a flight from risky assets.

Russian local-currency bonds had been a favourite among emerging-market investors in 2019 as bondholders put aside concerns about US sanctions and focused instead on the country's half a trillion dollars of reserves and one of the lowest debt burdens among major economies. BLOOMBERG