The Russian economy has returned to the regime of outflow of private capital, follows from preliminary statistics of the Central Bank on the balance of payments for October 2019. After an inflow of $1.3 billion in September last month, the private sector withdrew $6.7 billion from the country.
In the form of an outflow, which was a record since April, more than 80% of the free currency left Russia, which remained on the market after import costs and payments under financial items.
The balance of payments surplus in October – the difference between the main flows into and out of the country – almost tripled compared to September from $2.8 to $7.9 billion.
However, the operations of buying up foreign currency by the central bank ($4.3 billion) and the outflow organized by the private sector ($6.7 billion) “ate” the entire amount. The money of speculators buying up the Russian state debt helped to balance the market and keep the ruble stable: on expectations of a lower Central Bank rate in October, they invested $3.1 billion in sovereign bonds, a record amount since May.
The balance of currency flows in Russia is closed in a circle: the more currency the economy receives, the more it disappears in the outflow funnel. This is not an accident: local players, including banks, companies and households, “steadily prefer to save foreign assets”, says Dmitry Dolgin, chief economist at ING for Russia and CIS.
Low domestic economic activity is affecting, he points out: business sees few investment opportunities and prefers to save income in the “safe haven” of offshore and reserve currencies.
Another factor is the reduction in rates on ruble deposits, says RDIF chief economist Dmitry Polevoy: this strengthens the demand of the population and companies for currency, restraining the growth of the ruble.
In conditions when all conditionally free currency in the market is bought up by the state or leaves the country in the form of an outflow, non-resident funds operating on the government debt market become owners of the ruble exchange rate, Dolgin notes.
However, their moods and flows are volatile: after the October rush, demand for OFZs plummeted by the second week of November, forcing the Ministry of Finance to declare the bond auction not held for the first time in almost a year.
“Portfolio flows cannot be seen as a reliable support factor for the ruble”, says Dolgin: chronic outflow from the private sector will raise the dollar to 64-65 rubles in the coming weeks and 66 rubles in 2020.