Russian Central Bank increases currency borrowing to stabilize the ruble

The amount of loans of the Bank of Russia in the currency is doubled every quarter.
Origin source
The Bank of Russia unexpectedly resumed the practice of large-scale foreign currency loans abroad, Raiffeisenbank said on Wednesday with a reference to the regulator's statistics on the balance of payments for the third quarter.

The Central Bank's liabilities to foreign creditors are increasing for the third consecutive quarter, and the rate of loans is also increasing. In the first quarter, the Central Bank lent $ 1.7 billion, in the second - 2.6 billion, in the third - 4.6 billion dollars.

Probably, these were repo deals, within which the central bank received loans secured by securities from Russia's international reserves, says Raiffeisenbank analyst Denis Poryvay.

For 9 months, the Central Bank imported into the country $ 8.9 billion received as a result of such operations. According to the statistics of the regulator, the last time he was so active he "climbed into debt" only in the crisis year 2009 (11.9 billion dollars).

"The growth of liabilities of the Central Bank to non-residents looks unusual, and this growth began to be observed in such large volumes only this year," Poryvay notes.

On September 1, the Central Bank's debt to external creditors reached 11.6 billion dollars, the bulk of the amount came in July - 7 billion dollars, calculated Raiffeisenbank.

Probably, money "was needed to cover the shortage of currency liquidity that arose among some market participants," says Poryvay. Signs of dollar hunger were visible in September, when rates on currency loans in the money market soared, and a number of banks had to urgently attract foreign exchange from the Central Bank through a swap.

At the beginning of the year, banks had about $ 13 billion of free currency liquidity - so their own foreign exchange reserves exceeded their liabilities to customers on settlement accounts.

But by September, this stock, a kind of non-public reserves of the country, was exhausted completely - the money went to pay off foreign debts and cover a hole in the balance of payments, which required a much cheaper ruble.

"If our hypothesis is correct, this year, and especially in the third quarter, the central bank is actively supporting the Russian foreign exchange market," Poryvai said. The use of loans does not lead to a reduction in foreign exchange reserves.

New support for the currency market and the ruble may be needed in December: in the fourth quarter, the net inflow of currencies in the Russian Federation in current account may reach $ 8 billion, while the repayment of the external debt of banks and corporations needs $ 17.6 billion.

"All other things being equal, this should help to weaken the ruble (reduce the offer to sell currency to accumulate liquidity to repay the debt) and increase the value of currency liquidity in December," warns Poryvay.