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. Last Updated: 07/27/2016

Hard Currency Reserves Fall by $600M in July




Russia's foreign exchange and gold reserves have fallen by $300 million for the second week in a row to $11.5 billion, their lowest level in two months, the Central Bank said Thursday.


The Central Bank gave no reason for the decline in reserves, calculated as of last Friday, but economists attributed it mainly to heavy foreign debt servicing obligations.


The government, which has defaulted on a number of loans recently, has placed $320 million in its debt repayment bank to cover coming obligations on two Eurobond coupons, Interfax reported Thursday.


The money was placed in Vneshekonombank ? the payment agent for the government's foreign debt ? to cover coupon payments due Friday on a seven-year Eurobond sold last year and a 20-year Eurobond sold in 1998, the news agency reported, citing a spokesman from the Finance Ministry


Natalya Orlova, economist at Alfa Bank, said the $600 million drop in reserves this month may also be due to intervention on the foreign exchange market.


"Something like $400 million could already be bought and transferred for the Eurobond and partly for payments to preferred creditors," Orlova said. These include the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development.


"But it is also clear that around $200 million could have been spent to support the ruble at the beginning of the month," she added.


Denis Rodionov, economist at Brunswick Warburg, said the decline in reserves was mostly due to debt servicing which the Central Bank has assumed since last year's financial crisis depleted government coffers.


"I don't think the Central Bank is selling currency heavily on the foreign exchange market," Rodionov said.


"As far as we understand, the Central Bank's policy would be to let the ruble depreciate if they feel they can't raise enough reserves," he said.


The ruble has risen against the dollar by about two kopeks in every trading session since July 7.


The Central Bank's rate for Thursday was set at 24.26 per dollar, and bank chief Viktor Gerashchenko has forecast it will hold at 24.25 until September.


Rodionov said foreign debt repayments in July could total between $1 billion and $1.4 billion.


"I wouldn't be surprised if the reserves became somewhat weaker in the next two weeks, maybe not by $300 million but by $200 million," he said, adding that fresh IMF support could gradually reverse the trend.


Moscow has tried to stay current on Eurobonds issued after the 1991 Soviet collapse and on debts to international financial institutions such as the IMF and the World Bank.


However, it has missed several payments to other foreign lenders in recent months.


The government wants to stop taking Central Bank reserves to meet foreign debt payments, and hopes the IMF will release $4.5 billion in loans over 18 months, as it has tentatively promised, Mikhail Zadornov, Russia's top envoy to international financial institutions, said this week.


Russia could get up to $1.9 billion from the IMF this year, Zadornov said.


The loan would probably lead to additional lending from the World Bank and Japan and open the door to debt restructuring agreements with the Paris and London clubs of creditors.


The IMF is to consider new lending to Russia during a board meeting next Wednesday.


The World Bank is expected to complete its loan review process shortly afterward.


The IMF froze a loan package worth more than $22 billion after Russia's financial collapse last August.


The new loan under consideration depends on parliamentary approval of a package of laws intended to increase government revenue, combat corruption and restructure the banking system.


The money will all go toward repaying credits previously given by the IMF.