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. Last Updated: 07/27/2016

Reserves May Not Be a Clue to Currency Buys

The country's international reserves are no longer an effective gauge of the Central Bank’s weekly currency sales and purchases because of the volatility in foreign-currency correspondent accounts, Renaissance Capital said Monday.

Weekly changes in the stockpile are “sending signals about the regulator’s interventions that seem to contradict market evidence” because of the “highly volatile” funds held by commercial banks in accounts with the central bank, Renaissance Capital analysts led by Anton Nikitin wrote in a note.

The accounts have a “significant distorting effect on the statistical data, as the funds on these accounts are highly volatile and can significantly influence the Central Bank reserves weekly data,” RenCap said.

The so-called correspondent accounts, which are counted as part of the world’s third-largest reserves, were introduced in December 2008 as a way of ensuring that Russian lenders adhered to limits on the amount of foreign exchange that they can hold.

While the restrictions were lifted last summer, triggering an outflow of capital abroad, “some banks still use these accounts, for reasons unknown to us,” RenCap said.

Withdrawal from banks’ accounts may have contributed to last week’s “significant” $3.9 billion decline in reserves, which can’t be explained by changes in the prices of reserve assets and the extent of Central Bank interventions, the investment bank said.

RenCap now plans to rely on “market evidence” and the Central Bank’s monthly reserves data to estimate the regulator’s currency interventions, the report said.