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Russia to Restart Foreign Exchange Reserves Buying

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01/11/2019 | 11:49am EST

By Anatoly Kurmanaev

MOSCOW -- Russia will resume foreign currency purchases on the open market to boost sovereign reserves after an eight-month break, a sign of the country's fading fears that major new sanctions will sink the ruble.

Russia's Finance Ministry will spend 257 billion rubles ($3.8 billion) on foreign currency from Jan. 15 to Feb. 6, or about $232 million a day, the ministry said Friday. The announcement, which was expected, didn't cause major movement in the ruble-dollar exchange rate, with one U.S. dollar buying 67 rubles Friday.

The Russian government by law puts the money it earns from oil sales above $40 dollars a barrel into international reserves to reduce the country's vulnerability to oil market shocks. Last April, after the ruble was hit by damaging U.S. sanctions and a slump in emerging markets, the country stopped buying foreign currency on the open market in an effort to stabilize the currency.

The resumption of dollar purchases in theory could put further pressure on the ruble. But Russia's central bank, which buys foreign currency for the finance ministry, said the resumed purchases will be gradual and modest in daily volumes to keep the ruble exchange rate stable.

Russia's currency lost nearly a quarter of its value against the dollar in 2018, fueling inflation and wiping out real income growth, but was stable the last few months of the year.

Russia's foreign exchange market re-entry, which was announced in December, shows its officials believe the worst impact of existing Western sanctions designed to punish Kremlin's meddling in elections and use of chemical weapons has faded. On Thursday, the U.S. Treasury Department reaffirmed its intention to lift sanctions on Russia's largest aluminum producer Rusal.

The "sanctions risk has diminished," said Richard Segal, emerging-market analyst at Manulife Asset Management. "The Russian economy doesn't have much dynamism, but it is stable and these days stability is a more valued commodity than growth with the risk of volatility."

Russia hopes building up reserves will provide it with a financial bulwark should relations with the West deteriorate again. To reduce its exposure to the dollar, on Thursday, the country's central bank revealed that it had brought its dollar holdings to a record low, moving $100 billion in 2018 into euros, yuan and yen to safeguard against any future restrictions on Russia's use of the U.S. financial system.

Only 22% of the central bank's $460 billion reserve stash was in dollars at the end of June, compared with 46% a year earlier, show the bank's latest figures. The overall level of reserves has recovered from as low as $356 billion in 2015 when the central bank was spending dollars to prop up the ruble in the face of sanctions and collapsing oil revenue.

Georgi Kantchev in London contributed to this article.

Write to Anatoly Kurmanaev at Anatoly.kurmanaev@wsj.com

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