Central Bank Says Outflows Stable, Market Undervalued

Russia probably saw net capital outflows in September of the same magnitude as in August or a little greater, Central Bank First Deputy Chairman Alexei Ulyukayev said Saturday.

"It was likely an outflow of about what we saw in August, maybe a bit higher," Ulyukayev said in an interview with Ekho Moskvy radio.

He reiterated the bank's estimate for August outflows of $4.6 billion. Analysts say outflows were likely much higher.

"This is not a crisis," Ulyukayev said of the situation in Russian markets.

Investors' confidence in Russian assets was knocked this summer by falling oil prices, wrangles over BP's Russian venture TNK-BP, a government attack on coalminer Mechel, the military conflict with Georgia and the subsequent souring of relations with the West. An intensifying crisis in U.S. financial markets further compounded investors' fears.

A government rescue package potentially worth 130 billion dollars and a better tone on global markets helped Russia's stocks indexes rebound well over 20 percent Friday.

"Russian assets are some of the most undervalued in the world. ... Rational investors should invest, and the government can also act as a rational investor who is buying trustworthy stocks at these low levels with its own money."

But Ulyukayev also admitted that the market-saving measures have put the Central Bank's 2008 inflation target of about 11 percent out of reach -- a fact that could cost him a crate of alcohol on a lost bet.

Inflation for the year to date has already reached 10 percent.

"With 10 percent accumulated already, the forecast of 11 percent will be extremely hard to realize," he said, agreeing with Central Bank Chairman Sergei Ignatyev, that inflation could reach 12 percent for the year.

Speaking on the same radio station in August, Ulyukayev said that he had made the wager to a member of the government that this year's inflation would not be higher than 2007's 11.9 percent.