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. Last Updated: 07/27/2016

Central Bank Boosts Controls on Currency




Fearing a drop in the ruble once some of the restrictions on foreign exchange markets are lifted by Sept. 30 under an IMF program, the Central Bank is moving to restock its regulatory arsenal.


The Central Bank approved Aug. 5 a regulation stating that the balance sheet and off-balance sheet foreign exchange positions of banks each cannot exceed 10 percent of the bank's capital. The regulation would come into effect Nov. 1.


Under previous regulations, banks were not supposed to hold more dollars on the asset side of their balance and off-balance sheets than were recorded on the liabilities side of the balance and off-balance sheets.


Banks have been getting around this by selling fictitious forward contracts that are recorded on the liabilities side of the off-balance side and using them to square dollar assets.


Should the new rules be fully enforced - eliminating this loophole - they would flood the forex markets with dollars, driving up the ruble, analysts said.


If the top 30 banks followed the regulations, they would have to shed some $1.9 billion worth of dollar assets, a Troika Dialog report says.


The new regulation could be aimed at compensating for the lower demand for rubles that is expected once the existing hard currency deposit requirements for import prepayment are eliminated. The Russian government and the Central Bank promised the IMF that this requirement would be lifted before Sept. 30 in an economic policy agreement that was a prerequisite for restarting the $4.5 billion IMF loan program originally agreed with Yevgeny Primakov's government.


Faced with downward pressure on the ruble as a result of continuing political uncertainty, the Central Bank may well bring in more regulations, analysts said.


"The Central Bank will stick to restrictions which do not cause formal objections on the part of the IMF," Andrei Ivanov, banking analyst at Troika Dialog, said. "Most probably, they will keep switching banks off from trading on the foreign exchange market."