Russian foreign exchange reserves decreasing
Absent a further substantial fall in oil prices, the Russian central bank’s foreign exchange reserves (FXRs) are sufficient to cover the country’s external debt obligations in 2015, Moody’s Investors Service reported.
According to official data, the Bank of Russia (CBR)’s FXRs (as of 1 December 2014) are at USD 361 bln. This is more than sufficient to cover the country’s external debt payment obligations through 2015, which amount to roughly USD 130 bln across government, banks and corporate debt, according to Moody’s. That assumption holds even when excluding the USD 150 bln of FXRs counted as the central bank reserves that come from the government’s two special savings funds — the National Wealth Fund (NWF) and Reserve Fund (RF). While these two have specific mandates and are unlikely to be used either to intervene in the foreign exchange market or to finance the government’s external debt payments, like the CBR’s own reserves, the amounts placed in the central bank contain liquid, marketable assets, that can be utilised if required. Moody’s assumes that in exceptional circumstances the government would be willing to authorise the use of the government’s special funds to pay external debt or other urgent priorities. The need for such action could arise if oil prices were to fall still further, eroding the current account surplus, or if there were a further escalation of tensions/international sanctions leading to a revival of capital flight at a higher pace, which would put additional pressure on the rouble.
The CBR’s intention to cap daily interventions in the foreign exchange market (in principle to USD 350 mln per day) should help preserve foreign currency reserves for debt servicing, although this decision is being tested by continued rouble volatility.
According to official data, central bank FX sales to support the rouble dropped from USD 29 bln in October to around USD 1 bln in November after the change in policy. Nonetheless, severe pressure on the rouble — resulting from a steep fall in oil prices in the past week — poses a significant challenge to the new exchange rate policy. As seen in recent days, the CBR will intervene more aggressively to support the rouble if it believes financial stability is threatened.
Furthermore, as long as the Ukraine crisis persists, Russian entities will have little or no access to foreign exchange on the capital markets, so Moody’s expects that private and public companies’ reliance on the central bank’s reserves will eventually increase.