(MENAFN - Gulf Times) Russia's central bank has grown so focused on price growth that it's making a resumption of foreign currency purchases for reserves conditional on meeting its inflation target, according to the head of its monetary policy department.
The chase after its 4% goal for inflation has already taken precedence for rate setters as they've kept monetary policy tight through a recession. The central bank, which in 2015 announced a goal of boosting reserves to 500bn in the long term, hasn't bought foreign currency for more than a year.
'The main indicator the central bank will watch when making a decision to replenish reserves is the attainability of the inflation target, Igor Dmitriev said in an interview in Moscow. In addition, 'there should certainly be some ‘excessive' supply of dollars on the market so that we can buy without any significant impact in general on the foreign-exchange market, without doing harm to achieving the target for inflation and keeping it at that level.
By linking its return into the currency market with inflation, the central bank is signalling it's unlikely to act to stem gains in the rouble after its strength this year set off alarms among government officials concerned that it makes exports less competitive.
The central bank hasn't bought foreign currency for more than a year to avoid compromising its free float, allowing the market to set the exchange rate since late 2014 andledging to avoid interventions unless the rouble's swings threaten financial stability. After burning through about a fifth of its international reserves to prop up the rouble during a crisis in 2014, the Bank of Russia bought about 10bn between mid-May and late July 2015 before suspending purchases after a bout of rouble weakness and a spike in volatility. The Russian currency has added to its best-ever year in 2016 with a gain of almost 5% against the dollar in 2017.
The central bank's stockpile was at 397.3bn at the end of February, growing for two months but still down a third from its 2008 peak. Dmitriev said the plans to rebuild reserves are 'independent of foreign-currency purchases by the Finance Ministry under a different programme to help soak up excess oil revenue.
Policy makers have said they will examine the possibility of resuming foreign-currency purchases if conditions improve from its baseline scenario, which assumes oil will stay near 40 a barrel. Russia's Urals export blend usually trades at a discount to Brent crude, which was near 52 in London on Thursday.
International reserves at 500bn are 'appropriate for the stable functioning of the Russian economy in an unfavourable foreign economic environment and international trade and financial sanctions, the central bank said in its policy guidelines for 2017-2019.