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. Last Updated: 07/27/2016

Central Bank Alters Forex Method

The Central Bank announced Thursday that it will no longer include short-term hard currency liabilities such as repurchase agreements in calculating its gold and foreign currency reserves.

"The new method will provide a clearer picture of the Central Bank's gold and foreign reserves," said First Deputy Chairman Oleg Vyugin.

Strong oil world prices, lower capital flight and rising investment have flooded Russia with dollars, pushing the Central Bank's gold and currency reserves to a ninth consecutive weekly high of $43.6 billion as of June 28. Excluding short-term liabilities, reserves stood at $42.4 billion as of July 1.

The Central Bank reported that reserves stood at $42 billion as of July 5, but it did not provide a comparison under the old methodology.

Analysts praised the change, but urged the bank to continue publishing short-term liabilities. "If they continued to publish [reserves] by both the old and new methodologies, it would be important because the market could see how the Central Bank deals with ruble liquidity," said Yevgeny Gavrilenkov, chief economist at Troika Dialog.

However, "at the levels of the present reserves, $42 to 43 billion, [short-term liabilities] don't have a significant meaning," he said.

Vladimir Tikhomirov, an economist at NIKoil, said the Central Bank may have changed its method while planning to increase short-term liabilities.

Short-term liabilities accounted for about 4.7 percent of reserves in the first seven months of 2002, compared with 2.7 percent in the same period last year.

Tikhomirov said such liabilities could be used in servicing the Finance Ministry's account used for external debt payments and thus would increase as debt comes due. Russia's external debt peaks slightly next month.

"If the Central Bank's short-term liabilities are related to debt payments, they could grow quickly and suddenly fall," he said. "This could create some kind of panic, especially since next month is August, the traditional month for crises."

The nature of short-term liabilities has created volatility in the reserves, spooking the market when explanations were not given.

"Those transactions have made the reserves go up and down and the market would not know the reason," Vyugin said.

Their fast growth prompted a spate of forecast revisions, with some analysts increasing their outlook for the reserves to $50 billion by the end of the year.

"This is not a realistic estimate. One should not forget that Russia has to pay its foreign liabilities of $8 billion," Interfax agency quoted Vyugin as saying. "We will try to cover that shortfall, but in these circumstances it is not realistic to increase our reserves considerably."

Vyugin said the Central Bank would aim at the reserves "considerably" covering the monetary base, sovereign and private foreign liabilities and three-month imports.

"Those requirements alone force us to keep the reserves at the $35 [billion] to $40 billion level," he said.

(Reuters, MT)