Gleb Bryansky and Alexander Marrow

MOSCOW (Reuters) – Russia’s central bank said on Wednesday it would stop foreign currency purchases to ease pressure on financial markets after the ruble weakened above 110 against the U.S. dollar, down by a third since early August.

The central bank said it had decided not to purchase foreign currencies in the domestic market from November 28 until the end of the year, but to postpone these purchases until 2025.

“The decision has been taken to reduce the volatility of financial markets,” the regulator said in a statement. Since Russia was prohibited from using the dollar and euro, it carried out foreign exchange interventions using currencies.

Russia released recent economic data on Wednesday, highlighting the latest signs of overheating in an economy rebuilt for the war in Ukraine that has sucked workers out of the labor force.

Real wages rose 8.4% year-on-year in September, unemployment hit a record low of 2.3% in October and weekly inflation was almost 0.4%, all despite the benchmark interest rate of 21%.

By 16:00 GMT, the ruble had fallen 7.25% since the start of trading on Wednesday at 113.15 per dollar, according to LSEG data, further fueling inflation which remains at around 8% annually.

It fell above 15 to the yuan, also to its lowest level since March 2022, just after Russia invaded Ukraine.

Under Russia’s budget rules, the finance ministry sells foreign currency from the windfall National Wealth Fund to make up for shortfalls in oil and gas export revenues, or makes purchases in case of a surplus.

The ministry’s forex transactions are carried out by the central bank, which also carries out its own interventions.

The central bank said it would continue to conduct its own yuan sales at the equivalent of 8.4 billion rubles a day, thereby increasing the Russian state’s daily net sales of foreign currencies to the equivalent of 8.4 billion rubles from about 4.2 billion rubles.

Dmitry Pyanov, vice president of Russia’s second-largest lender VTB, said sanctions imposed by the United States on Russia’s third-largest lender, Gazprombank, which deals in energy trading, were responsible for the keen decline in the ruble.

“I suppose that the sanctions against Gazprombank have had a significant impact because it has ceased to be a channel for supplying foreign currency to the Moscow stock exchange,” Pyanov said.

He said that the central bank should focus in the coming days on stabilizing the currency market, which is currently not functioning properly.

PSB Bank analysts say the decision will “moderately support the ruble, but will not be enough to return the rate to last week’s levels,” predicting that the market will remain volatile.

RUBLE AND STOCK PRICES ARE falling sharply

The ruble’s decline has been compounded by a stock market decline of more than 20% so far this year as investors shift their savings from stocks to deposits that offer interest rates above the benchmark rate of 21%.

Economy Minister Maksym Reshetnikov said that the ruble’s volatility is due to the strength of the global dollar and market concerns after the recent sanctions, rather than to fundamental factors, and predicts that the ruble will stabilize soon.

He said that 82% of Russian exports and 78% of imports are paid in rubles and “friendly” currencies of non-Western countries.

Analysts said another measure the government could take is to force exporting companies to sell more foreign currency by raising mandatory sales requirements, although not everyone was convinced that would work.

“If exporters are unable to transact [due to sanctions]a requirement from the government will not improve the situation in any way,” said economist Evgeny Kogan.

The ruble’s decline is fueling inflation that is expected to exceed central bank estimates for this year, at odds with the regulator’s painful tightening of monetary policy, with the benchmark interest rate at its highest level since 2003.

The central bank estimates that a 10% decline in the value of the ruble increases inflation by 0.5 percentage points, which means that the decline in the last four months could augment inflation by 1.5 percentage points.

All trading in dollars and euros moved to the over-the-counter market after Western sanctions were imposed on the Moscow Stock Exchange (MOEX). As a result, trading has become volatile and unclear, with most banks disclosing data only to regulators.