Rus­sian for­eign ex­change re­serves de­creas­ing

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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