Russia’s central bank will buy government bonds on the open market when trading resumes Monday, the regulator announced Friday afternoon.
Trading of bonds and stocks on Russian financial markets has been suspended since 10 February. 25, following the imposition of unprecedented economic sanctions on Moscow for its invasion of Ukraine which brought the ruble down.
Governor Elvira Nabiullina announced this at a press conference on Friday afternoon.
“We are now ready to gradually resume trading on the Moscow Exchange. The negotiations for the government bonds will open on Monday, “she said.
“To neutralize excessive volatility and provide balanced liquidity, the central bank will buy government bonds.”
The regulator did not publicly state how much it was willing to spend to buy public debt, saying the purchase would be “in the amount necessary to limit the risks to financial stability.”
“This is the Russian version of quantitative easing (QE), which allows you to maintain liquidity in the system and reduce the cost of borrowing for the government,” said Dmitry Polevoy, brokerage analyst at Loko Invest.
Traders are prepared for extreme drops in the value of Russian assets once trades have started.
“In the first few minutes after trading opens, after so many days of inactivity, many buy and sell applications will hit the market,” said Vasiliy Karpynin, head of analytics at BKS Investments, a Moscow-based broker to The Moscow times.
“Foreigners accounted for about 48% of turnover in trading in stocks and bonds in 2021. After the lifting of the restrictions … there could be a wave of sellers, “he added.
Many large Western investment funds have already announced plans to divest all Russian assets, while others have already written off huge losses and will be willing to sell at any price.
Nabiullina added that the Central Bank was buying government bonds only as a measure of financial stability, noting that it differs from large-scale QE bond buying programs launched in recent years in the United States and Europe, where the goal was to support the economy and increase the money supply.
“After the return of a period of stability on the financial markets, we plan to sell the acquired assets completely to neutralize the effects of this action on monetary conditions,” he said.
Trading in shares of Russian companies, which is expected to be the most volatile part of the market, will not resume on Monday, the central bank said.
The Russian government has proposed to prevent foreigners from selling Russian shares once negotiations resume to protect the Russians.
It had also previously set aside up to 1 trillion rubles ($ 10 billion) to buy Russian shares when the market reopens in order to avoid the worst of a massive sell-off. Loko Invest’s Polevoy says the money – which was designed to come from the Russian National Welfare Fund, part of which has now been frozen by Western governments – could be used in the new bond purchase program.
Middle-class Russians have entered the stock market in recent years, driven by loose legislation, low fees, and mobile brokerage. Many had already experienced heavy losses in market sales before Moscow invaded Ukraine – and are now prepared for further devaluations once trading eventually resumes.
“The problem will be sharp falls in stock prices, which will trigger defaults on secured loans on those securities,” said Julian Rimmer, an emerging market equities specialist.
“It could be a partial reopening, commercial limits and capabilities could be tightly limited,” he added. “It might be impractical to even trade it, but for propaganda purposes I expect them to try.”