Starting from mid-December 2022, the Russian currency market saw a sharp increase in volatility. The trading volume this month reached RUB 8.9 trillion, the highest since February last year, the Bank of Russia noted in its Financial Markets Risk Review for the last two months of 2022. The main growth in volumes was due to two currency pairs: “yuan – ruble” and “dollar – yuan”. Their combined share of the total trading volume in December reached 37%, while the share of the “dollar – ruble” currency pair fell to the minimum since the beginning of the year – to 40%.

Since the second half of December, the ruble has been weakening on the spot foreign exchange market: from December 15 to 21, the Russian national currency fell against the U.S. dollar by 10.94%, against the euro – by 10.66%, and against the yuan – by 9.97%. The reasons for this were several factors, notes the regulator.

FIRST FACTOR

In December, there was a decrease in sales of foreign currency proceeds by exporting companies. Average daily net sales of foreign currency by 29 major Russian exporting companies decreased by 6% this month compared to the previous month “mainly due to a decrease in sales from the oil and gas sector”. At the same time, the main drop occurred precisely in the second half of December.

“The volume of average daily net sales of the largest exporters in the second half of December declined and amounted to 37.7 billion rubles ($576 million), which is 24% less than in the first half of December, and is partly seasonal in nature,” the Central Bank analysts wrote.

The reason for the decline in the supply of foreign currency was the fall in prices for hydrocarbons supplied abroad, along with a reduction in the physical volume of their exports. The main agents for the sale of foreign currency earnings of exporters – systemically important banks – were the main sellers of foreign currency on the market, however, the volume of foreign currency sales by them fell in December to 725 billion rubles against 837 billion rubles in October.

SECOND FACTOR

On the part of some market participants, there was an increased demand for “toxic” currencies. Credit organizations not related to systemically important banks bought “unfriendly” currencies for them. Although their volume of purchases in December (567 billion rubles) and slightly decreased compared to October (678 billion rubles), but most of the funds were purchased by them in the second half of December (386 billion rubles).

“In addition to traditional currency buyers (importers and individuals who periodically transfer funds to foreign accounts), the demand for “toxic” currency was made by clients buying back business from companies from unfriendly countries forced to withdraw from the Russian market due to sanctions,” the review says.

Also at the end of the year, the process of converting foreign currency deposits into ruble deposits accelerated, which led to an increase in banks’ demand for foreign currency in order to offset the impact on the open currency position.

THIRD FACTOR

There was a high demand for foreign exchange from individuals.

“Individuals tend to have a counter-cyclical impact on the foreign exchange market. However, no systematic sales on their part were observed in December,” Central Bank analysts emphasize.

In December, individuals purchased currency worth Br154.2 billion on the exchange market and through the largest banks (for example, in November they bought it twice less – Br70.1 billion).