Russia is likely to resume buying foreign currency for its reserves as soon as this month as rising oil earnings stabilize public finances despite US and European efforts to squeeze Kremlin income.
With energy revenues now close to exceeding their target level, purchases are possible already in May, according to Bloomberg Economics, which estimates initial volumes could amount to the equivalent of around $200 million in yuan per month. The Chinese currency is the main asset Russia can still use to conduct transactions for its $154 billion wealth fund because of sanctions.
Since purchases were halted in late January 2022, followed by the program’s suspension after the invasion of Ukraine the following month, the Finance Ministry has only sold foreign currency this year under a revamped budgetary mechanism designed to insulate the economy from the volatility of commodity markets. Russia gets around a third of its budget revenues from the oil and gas industry.
The base price used in the oil-output and profit-based tax calculations for crude producers is calculated at a discount of the nation’s flagship Urals crude to international benchmark Brent—set at $34 a barrel for April before gradually narrowing to $25 from July. Rosbank economist Evgeny Koshelev sees a range of scenarios that include currency purchases brought forward to May or alternatively delayed to June or even July.
The outlook is shifting as a result of the rising export prices of Russia’s crude and changes in the tax formula that the Finance Ministry expects will deliver some 600 billion rubles of additional budget income.
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