CBR/Finance Ministry - Measures to Help Ruble Stabilize if Oil Stops Falling

This morning, the Finance Ministry and CBR announced drastic measures to stabilize the currency market following the ruble's 10% collapse yesterday amid a plunge in the Urals price below $20/bbl on signs OPEC+ members remain determined to boost output (there is certainly spare capacity to do so). This is all taking place as the global economy heads into a recession, which will hurt energy demand.The Finance Ministry announced that it had transferred $45 bln into the National Wealth Fund that was bought under the budget rule last year and will begin selling part of the fund's money in order to execute the government's purchase of a controlling stake in Sberbank. Sberbank's current capitalization is around $46.5 bln, so around $23 bln will be spent for the 50% stake.Due to this deal, the CBR has today introduced a mechanism to make additional FX sales. It describes the measure as "fully compensating for the FX supply in the local market that is lost due to the reduction of export revenues from the sale of oil, oil products and natural gas when the oil price is below $25/bbl Urals." These operations, which will only be carried out when the Urals oil price is below $25/bbl, are scheduled to run until September 30, 2020, and they will be in addition to the standard FX sales from the NWF under the budget rule.On our estimates, with Urals at $20/bbl the volume of this additional FX selling will be $60 mln per day (while the regular FX sales from the NWF will be $160 mln daily), but could be about $100 mln if the damper mechanism is still in place. This comes out to about $230 mln per day, which would mean around $5 bln per month. The additional purchases could therefore last more than a year given the amount ($23 bln) the NWF will spend on the Sberbank stake.In light of the above-described measures, the ruble strengthened this morning to below USD/RUB 80 and perhaps could stabilize at around that level. But for that to happen, oil prices would need to stabilize, as a further drop in oil would speed up the depletion of reserves, which are vast (around $150 bln in the NWF) but finite.