Yuan rushes to the aid of the ruble: the Central Bank intends to sell the Chinese currency on the open market

The new financial mechanism is aimed at stabilizing the rate of “wooden”

The Bank of Russia plans to launch a new mechanism for selling yuan on the open market. The volume of operations will depend on the expenditures of the National Welfare Fund (NWF): from August until the end of the year it will amount to the equivalent of 288 billion rubles. The mechanism is being introduced against the backdrop of the ongoing weakening of the ruble, however, the regulator denies the connection between these phenomena, pointing to the need for the previously announced “mirroring” practice.

Compared to July 1 last year, the ruble has lost 70% in price, and from January to June 2023, a third of its value against the dollar and the euro. If at the end of 2022 the dollar was given less than 70 rubles, then last week the unit of the American currency was already trading at the level of 90 rubles, and on some days it broke through the mark of 92 rubles per dollar. The market expected that the regulator would want to somehow influence the quotes of the national currency. However, the head of the Bank of Russia, Elvira Nabiullina, said that operations with the yuan are not aimed at stabilizing the ruble exchange rate. “At one time, when it was decided that part of the NWF would be used for investment, they announced the mirroring of these expenses,” she recalled. – Then, due to a number of circumstances, this was suspended, so we believe that now is the time to return to this practice. This is not aimed at influencing the ruble exchange rate. It really aims to mirror our operations.” They will begin on August 1 and will be held on the Moscow Exchange. Their maximum total amount for the first half of the year will amount to 300 billion rubles. In the period until the end of January, the Central Bank of the Russian Federation will sell 2.3 billion rubles on the yuan market daily (depending on the exchange rate), that is, the total amount based on the results of all operations will be 288.4 billion rubles, which corresponds to the volume of investments made by the authorities from the NWF from January to June this year.

However, the market is convinced that the actions of the regulator will support the national currency. Only estimates differ on how tangible it will be. “We do not believe that the sale of yuan will contribute to a strong appreciation of the ruble, since Russia today receives much less convertible currency than in previous years, and the demand for imported goods among Russians remains high, since far from everything can be “import-substituted,” says Natalia Milchakova, a leading analyst at Freedom Finance Global. “This measure will allow the ruble exchange rate to gradually return to the optimal corridor, which was previously announced by the government: 80-90 rubles per dollar.” This means that we can expect the euro exchange rate to be in the range of 90-100 rubles and the yuan in the range of 11.5-12.5 rubles.

“The measure of the Central Bank of the Russian Federation to mirror the ruble expenses of the National Welfare Fund in yuan has more of a psychological effect of supporting the ruble exchange rate than an economic one,” says Maxim Fedorov, investment adviser at Fontvielle Investment Company. “It can only have a short-term effect on the market.” As part of the budget rule, an amount equivalent to 1.7 billion rubles is now allocated from the National Welfare Fund every day, and it is unlikely that it will increase: since the beginning of the year, the Ministry of Finance has been reducing it every month. In addition to these funds, yuan worth 2.3 billion rubles a day will be supplied to the market from August 1. It turns out that the total amount of funds from the NWF in foreign currency entering the market will be about 4 billion rubles per day. This is a little more than was implemented in the period from April 7 to May 5 under the budget rule (3.7 billion rubles) and less than in February and March. Despite such volumes, the ruble gradually devalued in these months, the expert recalled.

“The main influence on the ruble exchange rate is provided by foreign trade financial flows and cross-border movement of capital,” says Maxim Osadchiy, head of the analytical department of the BKF bank. — In June 2023, according to the first assessment of the Central Bank of the Russian Federation, the current account balance became negative. The outflow of capital from Russia continues, so the ruble is doomed to devaluation in the medium term.”

At the same time, experts differed in their assessment of whether the yuan can take the place of the dollar in the calculations of our country. Thus, according to Yulia Kuznetsova, an investment adviser in the register of the Central Bank of the Russian Federation, petrounit will not replace petrodollars in the Russian market. And Mikhail Zeltser, an expert on the stock market at BCS World of Investments, points out that the yuan is already crowding out Western currencies and this is an objective reality against the backdrop of a contraction in the western foreign economic direction and a wide opening of the eastern one. The pace of Russia’s cooperation with the Asia-Pacific region is growing by 40% per year, and the share of the yuan in the market may soon approach the same percentage. But it will not be possible to completely replace the dollar and the euro, and it is not necessary – Russia does not stop working with unfriendly countries, but the dynamics of substitution with the yuan is, of course, impressive, Zeltser emphasized.