Foreign Currency Reserves Leave Russia At A Rapid Clip

Investors have been pulling their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, according to new figures published yesterday. Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years. The only larger drop in reserves since 1998 was $16.5bn in June 2006, when Russia paid off the bulk of its Paris club debt.

Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month.

While the value of the rouble has stayed relatively stable since the start of the conflict, with the help of central bank intervention, the stock market has fallen 6.5 per cent since August 7 and companies have found it harder to raise capital as investors demand sharply higher yields to buy their bonds to reflect the perceived risk.

The moves show that Russia’s economy, in spite of having one of the strongest national balance sheets in the world, is not immune to global market sentiment, which could end up being an important check on Kremlin decision-making.