BAKU, Azerbaijan, March 1
By Leman Zeynalova – Trend:
At least half of Russian Central Bank reserves are likely to be frozen, Trend reports with reference to the UK-based Capital Economics research and consulting company.
“What’s more, the remainder may not be easily accessible – were the US to impose ‘secondary sanctions’ that affect foreign entities dealing with the CBR, China (where 14 percent of Russia’s FX reserves are located) may be less likely to trade with the CBR. And while the central bank holds all of its $132bn in gold at domestic vaults, it may be difficult to convert these so they may not provide an instant source of liquidity,” the company said.
As for the implications, Capital Economics believes that first, it will limit the CBR’s ability to intervene in the foreign exchange market in significant quantities to defend the ruble.
Second, the central bank is severely limited in its ability to provide foreign currency liquidity to banks and corporates for their financing needs (to meet FX deposit withdrawal or to repay FX debt), the company believes.
“The central bank may ultimately have to burn through a large chunk of reserves this year. Russia’s current account surplus ($120bn) provides an important source of foreign currency. But this could be more than offset by external debt repayments and private sector capital outflows (if they are able to skirt around capital controls). We think these could plausibly total $175bn this year, forcing the central bank to spend $80-100bn of its FX reserves (and more if it needs to help Russian banks),” said Capital Economics.
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