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UPDATE 1-Russia finmin says will buy dollars carefully to avoid volatility
February 7, 2017 / 12:06 PM / 10 months ago

UPDATE 1-Russia finmin says will buy dollars carefully to avoid volatility

* Russian central bank starts FX buying on Feb. 7

* To buy FX to rebuild finance ministry’s reserves

* Finmin uses the Norwegian experience (Adds details, source, quotes, background)

By Darya Korsunskaya and Gwladys Fouche

MOSCOW/OSLO, Feb 7 (Reuters) - Russia’s central bank will take care to avoid fuelling market volatility as it buys foreign currency to help rebuild the country’s rainy day fund, Finance Minister Anton Siluanov said on Tuesday.

The central bank is due to start purchasing dollars on behalf of the finance ministry from Tuesday, part of efforts to replenish the Reserve Fund while prices for Russia’s Urals crude oil stay above $40 per barrel. It will buy the equivalent of 6.3 billion roubles -- around $106 million at current prices -- via the Moscow Exchange every day this month.

“We will buy foreign currency very carefully (so as) not to create consequences in the form of the rouble volatility,” Siluanov told reporters.

He said the finance ministry could still spend from the Reserve Fund while making forex purchases. The dollars it buys could then be channelled into the Reserve Fund at the beginning of the next year, Siluanov added.

People involved in top-level discussions on the forex purchases told Reuters the central bank had been reluctant to participate, fearing investors would regard them as currency interventions designed to weaken the rouble.

The central bank and finance ministry have both said the plan to rebuild Russia’s reserves, depleted by low oil prices and international sanctions, does not compromise the rouble’s free float under a currency regime adopted in late 2014.

LOOKING NORD

A high-ranked government official confirmed that Moscow was using Norway, another big crude exporter which now sells forex and buys Norwegian crowns to cover budget needs, as a model for managing its reserves.

As Russia is doing under a budget rule adopted in January, Norway saves all the revenues it earns from crude sales above a specific price into its sovereign wealth fund and other fiscal buffers. That is also how Russia built up the Reserve Fund and another sovereign wealth fund during the long oil boom.

“Norway in fact has the same rule but they don’t need to intervene as they are collecting everything in U.S. dollars from the beginning,” the Russian source said.

Russian companies, including export-focused firms and those who receive revenues mainly in dollars and euros, pay domestic taxes in roubles. State budget spending is also in roubles while the Reserve Fund holds only foreign currencies.

With the slump in crude prices from mid-2014 also forcing Norway to spend some of its oil savings to finance the budget deficit, its central bank, the Norges Bank, is likewise carrying out forex transactions on behalf of the finance ministry.

It is currently selling foreign exchange equivalent to 1.0 billion Norwegian crowns ($120.10 million) per day, having raised that amount from 900 million crowns per day last month.

“The central bank doesn’t sell currency to influence the crown exchange rate, although they haven’t ruled out such an option completely,” said Kyrre Aamdal, senior economist at Norway’s largest commercial bank DNB.

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To see the Norwegian mechanism please click

bit.ly/2iIfmLq

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The Norwegian central bank declined to comment whether it had had any contact with Russian financial authorities on the forex transactions mechanism.

Russia’s central bank has repeatedly said it is ready to intervene in the market and use other tools at its disposal if it deems it is necessary for financial stability.

$1 = 59.3631 roubles $1 = 8.3261 Norwegian crowns Additional reporting by Andrey Ostroukh in Moscow and Nerijus Adomaitis in Oslo; Writing by Katya Golubkova; Editing by Catherine Evans

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