This is very good news, if not unexpected, for Russia’s economy – thanks to a rise in the value of the euro and greater efforts by commercial banks to make foreign currency deposits, the country’s foreign exchange reserves rose by a record $15.4 billion in the last week. That’s a record.
But this isn’t a coincidence, according to the Reuters:
Russian authorities told commercial banks not to increase their foreign currency positions or risk losing their access to the central bank’s liquidity through collateral-free auctions.
Instead, the central bank gave banks a possibility to park their foreign currency in interest-free accounts with the central bank. Ulyukayev said “several billion” were currently held in these accounts.
Commercial banks’ accounts in the central bank are matched by corresponding foreign currency positions in the central bank’s assets, which count as part of the international reserves.
Last week I blogged about all the pressures on the ruble,predicting that the strategy of managed devaluation (which againslipped yesterday) will likely still fall short of what the market isexpecting (20%). The tension between market analysts and economicofficials over the real value of the ruble is a recipe for disaster,and as such, one could view Arkady Dvorkovich’s prediction that the state will run a 5% deficit in 2009 as optimistic.
Despite the crisis and the budget shortfall, the Kremlin is notplanning on taking any steps to curb spending. President DmitryMedvedev gave a recent speech, declaringthat the government will spend about $10 billion in 2009 to improvehousing, education and health care. A few days earlier, Russia also pledged to drastically increase military spending to $140 billion – including the commission of 70 new nuclear missiles.
I’m not sure how the math is going to work out on this.
Photo: File picture shows a woman leavinga currency exchange office in Moscow. Russia on Thursday allowedanother weakening of the ruble against its dollar-euro currency basket,the eighth effective devaluation since November and third this week. (AFP/File/Natalia Kolesnikova)
Subscribe by Email
3 Comments
What you’ve written here simply makes no sense at all, and on top of it it sounds rather hyperbolic.How can you call it “good news” that the Russian government has prohibited banks from doing otherwise rational things what would result in depletion of reserves? Aren’t you in fact describing Potemkin reserve system, to go along with Russia’s Potemkin currency and Potemkin stock market?How can a $15 billion ruble gain be “very good news” when it follows on a $200 billion ruble loss? Aren’t you perhaps getting carried away?It’s only natural that the loss of reserves will slow if the state allows the currency to devalue. And though devaluation is necessary, it’s very far from being “very good news.” Russians rely on foreign products they can’t produce themselves, and they will be priced out of the market if the ruble tumbles. Russia will revert to a Soviet style economy of shortages, low quality and long lines.I think you tipped a bit too much X-mas eggnog before you wrote this.
we should note that Ulukaev has mentioned several times that an accelerated debt repayment schedule for 2009 could lead to a very rapid fall in reserves (100bio is my assumption) if this were the case, we would see reserves at a floor where I think CBR will accept a free float rather than further drain reserves. The impact this is having on the availability of finance for banks and corporates is devastating. it is also beginning to impact the sustainability of the baltics, ukraine and kazahkstan. competetive devaluation will be a messy geopolitical mix in 2009.
Yikes, Kim, take it easy. It is not a controversial statement to call a record high rise in FOREX as “good news FOR THE RUSSIAN ECONOMY.”I also thought Bob’s subsequent selection of text was sufficiently clear to make his point, that only by threatening banks could the Kremlin get them to do what they want?Also, I should note that at the same time the FOREX gets a record rise, the ruble has fallen to a three year low against the dollar.We also predict an eventual strong fall in value of the euro – which will nail Russia’s currency exchange basket and drain most of these gains.