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.