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. Last Updated: 07/27/2016

Net Capital Outflows Hit $10Bln in August

Net private capital outflows will hit $10 billion in August as foreign investors cut their exposure to risky assets, a senior government source said Thursday.

"The outflows were caused, above all, by the subprime crisis in the United States. Nonresidents are pulling their money out of emerging markets," the source said.

The source said virtually all of the outflows took place between Aug. 10 and Aug. 24. Russia saw major capital inflows earlier this year, but the trend reversed in July amid global financial jitters. The source said capital inflows from Jan. 1 to Aug. 24 this year were $56.3 billion. The Central Bank has forecast full-year net inflows at $70 billion. The source said August outflows were "not critical for the Russian economy."

Analysts estimate the amount of the remaining speculative capital, which came to Russia on expectations of the ruble appreciation, at only $5 billion, suggesting there was not much left to pull out. Gold and forex reserves fell by a modest $900 million to $413.8 billion in the third week of August, helped by the strong euro, which added value to the dollar-denominated reserves.

Dollars make up about 50 percent in the reserves currency structure. Euros make up about 40 percent and pounds sterling about 10 percent.

The Central Bank won a thumbs up from economists this month for its management of the money market volatility with its refinancing tools. It also adjusted the ruble's managed float policy this month, allowing some exchange rate fluctuations.

Russian banks, whose total foreign borrowing stands at 15 percent of their combined liabilities, are vulnerable to a change in global liquidity conditions, and some may face problems refinancing their debt, analysts say. Several midsized private banks have stopped issuing home loans, evoking memories of a 2004 mini-banking crisis, but analysts said there were few reasons to worry this time.

"We believe market worries about the general state of the banking system are exaggerated, in our opinion the largest banks can painlessly go through the liquidity squeeze," Renaissance Capital analyst Maxim Raskosnov said.

Analysts say capital outflows may also soon eat into capex and foreign direct investment figures, affecting overall economic growth, now expected to exceed 7 percent this year.

"It will be very important to watch the August and September data for signs of whether the abrupt draining of liquidity from the fixed-income market this month will take the edge of the recent investment boom," said Rory MacFarquhar, an economist at Goldman Sachs.

The Central Bank continued to pump liquidity into the banking system Thursday, injecting 192.7 billion rubles at its first repo auction of the day, but analysts said the peak in liquidity injections has been passed.