Russian Central Bank Chairman Sergey Ignatyev attends a State Duma session in March 2006.
Photo: Ilya Pitalev
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Russia Adds to Its Reserves
// Russian Central Bank's Gold Reserves to Climb, Oil Wealth Still Flowing
Yesterday the Central Bank reported another increase in its gold reserves, by $1.8 billion in the last week of October, to a total of $268.1 billion. Experts asked by Kommersant maintained that, for the growth rate of the gold reserves to be reversed, the price of oil would have to fall to $30 per barrel.
According to data published yesterday by the Central Bank, the volume of the Russian gold reserves was $269.1 billion as of October 27, 2006. In the week of the tally, the reserves grew by $1.8 billion. "The reserves will grow as long as there is a substantial surplus in the current account and desire in the Russian private sector to get credit from abroad," said "Renaissance Capital" head of analysis Aleksey Moiseev. In his opinion, a change in the dynamic trend of the volume of gold reserves is possible if the price of oil falls. However, he estimates that in order for the growth rate of the reserves to be reversed, the price of oil would have to fall to $30 per barrel.
According to an estimate by Oleg Solntsev, a leading expert at the Center for Macroeconomic Analysis and Short-Term Prognosis (TsMAKP), the gap between demand and supply of currency in the private sector of the economy is $35-40 billion every quarter. "If the Central Bank does not want the ruble to "hyperstrengthen," it will be obliged to buy up the currency," says Mr. Solntsev.
Much more currency is coming into Russia these days than is leaving the country. The current operations account (foreign trade), like the capital operations account in Russia, is running a huge surplus. According to data from the Central Bank, the surplus in the current account for the first half of 2006 was $56.6 billion, while that for the capital account was $9.4 billion.
However, a certain downward trend in the rate of growth of Russia's gold reserves is already being noticed. In August 2006, the Central Bank's reserves shrank by $20.6 billion due to Russia's repayment of its Paris Club debt. Subsequently, in September and October a slowdown in growth was noted. Instead of the $5-8 billion by which they had been growing monthly in the middle of the year, beginning with September the reserves began to grow at a rate of $2-3 billion per month, and in the middle of October their growth was particularly small.
Experts explain the events in several ways. The main explanation, which everyone cites, is the falling price of oil, which, according to Troika Dialog chief economist Evgeny Gavrilenko, has fallen by 28% against the peak value of 2006. That cut back the flow of currency to Russia and relieved the Central Bank of having to sterilize an additional currency flow.
According to economists, another factor that slowed the growth rate of the gold reserves in September and October is a change in the mood among short-term investors. "After the price of oil stopped rising so quickly and the expectation of further strengthening of the ruble changed, the mood among investors changed as well," said Mr. Gavrilenko. "But depreciation of Russia's gold reserves is impossible – the only thing that can possibly happen is slowing growth rates." In TsMAKP's estimation, if the flow of clean capital into the Russian economy in the second quarter was $18 billion, then in the third it will be $12 billion (the Central Bank says $14 billion).
Experts asked by Kommersant maintained that there are no threats on the horizon of substantial slowdowns in the growth rate of the gold reserves, much less threats that the reserves will shrink. TsMAKP predicts that they will grow by a further $25 billion in the fourth quarter of 2006.
Aleksey Shapovalov
All the Article in Russian as of Nov. 03, 2006
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