The Central Bank called the reasons for the weakening of the ruble at the end of 2022

In mid-December 2022, the Russian currency began to weaken sharply, and the volume of trading on the foreign exchange market this month reached 8.9 trillion rubles for the first time since February, writes the Bank of Russia in a new review of financial market risks. The main growth was in the yuan/ruble and dollar/yuan pairs, the combined share of which reached 37% in December (31% in October). At the same time, the volume of trading with the dollar/yuan pair in the last month of the year doubled compared to October, to 950 billion rubles. (11% of trading volume). Trading in the currency pair “dollar / ruble”, on the contrary, in December fell to a minimum since the beginning of the year and accounted for 40% of the total trading volume.

From December 15 to December 21, in the spot foreign exchange market, the ruble exchange rate fell against the dollar and the euro by 10.94% and 10.66%, respectively, and against the yuan – by 9.97%.

The Bank of Russia named several reasons for the sharp weakening of the ruble in mid-December.

The first is a decrease in the volume of sales of foreign exchange earnings by exporters. In December 2022, the average daily net sales of foreign currency by the 29 largest Russian exporting companies amounted to $15 billion. This is the lowest value for the entire past year. The main reason given by the Central Bank is the decline in sales in the oil and gas sector. Their average daily volumes began to fall in the second half of December, amounting to 37.7 billion rubles. ($576 million). This is 24% less than in the first half of December.

The decrease in the supply of foreign currency is partly seasonal, explains the Central Bank. It occurred against the backdrop of falling prices for supplied hydrocarbons with a simultaneous reduction in physical volumes of oil and gas exports.

The main agents for the sale of exporters’ foreign exchange earnings are systemically important banks, which are also the largest sellers of foreign currency on the market. But sales in November and December (727 billion and 725 billion rubles, respectively) were less than October (837 billion rubles).

The second reason for the weakening of the ruble is the demand for “toxic” dollars and euros on the part of individual participants.

The main buyers of currency on the stock exchange in December were banks that are not systemically important. Although in November and December the volumes of their purchases (506 billion and 567 billion rubles, respectively) were lower than October (678 billion rubles), 68% of all transactions occurred in the second half of the month (386 billion rubles), the Central Bank notes.

The demand for “toxic” currency was also among clients who bought out the business of companies from unfriendly countries that left the Russian market due to sanctions, the review says. For example, in November, the Japanese concern Nissan transferred 100% of its assets to the Scientific Research Automobile and Automotive Institute (NAMI), subordinate to the Ministry of Industry and Trade.

The acceleration of the process of converting foreign currency deposits into rubles by the end of the year also had an effect, the Central Bank notes: this led to an increase in banks’ demand for foreign currency in order to compensate for the impact on the open foreign exchange position (OCP). “This is the most controversial factor,” write PSB analysts. Typically, converting loans can lead to demand for the currency from customers or banks that cover ORP, they note. When converting foreign currency deposits into ruble deposits, the bank has a long ORP in foreign currency (assets in foreign currency are more liabilities in it) and buying foreign currency on the balance sheet will only worsen the situation with ORP, the authors of the Solid Numbers Telegram channel draw attention. “There are doubts that banks, in response to the deterioration of the ORP due to the conversion of deposits, decided to further worsen it by buying foreign currency on the balance sheet,” they note.

Another factor that influenced the ruble, which the Central Bank highlights, is the purchase of foreign currency by citizens. Individuals sell currency systematically, but in December there were no such sales on their part, the regulator reports. The exception was on December 15, when citizens sold through the largest banks “toxic” currency for 25.8 billion rubles. This temporarily slowed down the weakening of the ruble. In general, in November and December, on the exchange market and through the largest banks, individuals bought currencies for a total of 70.1 billion and 154.2 billion rubles. respectively, which also had a negative impact on the dynamics of the ruble exchange rate.