Banks send it back to Central Bank
Alexei Shapovalov
The Bank of Russia will continue efforts to curb the outflow of capital, as President Dmitry Medvedev supported Prime Minister Vladimir Putin's efforts by saying that cash liquidity supplied to the market was not to be immediately converted into foreign currency.
Analysts say that the record outflow witnessed in October, $50 billion, will not be repeated, at least not this year. Unable to channel their assets abroad, banks are now sending the money back to the regulator. Their deposits with the Bank of Russia have grown by 200 billion roubles since November 1.
President Medvedev said Tuesday at a meeting with the Chamber of Commerce and Industry Board that he supported the Government's decision, made at the Prime Minister's meeting with bankers and military and security officials, to monitor the outflow of capital.
"Additional liquidity is not being injected into the market to buy foreign currency or reserve funds in foreign banks," the President said.
The $50 billion outflow of capital in October 2008 announced by Central Bank Chairman Sergei Ignatyev in the Government House on Monday was in fact an all-time high, not just in terms of a monthly outflow, but also as a yearly figure.
Net capital outflow from Russia was $16.6 billion in the third quarter of 2008, while this year's total inflow was $0.8 billion. Therefore, the net outflow from January through the end of October was $48.2 billion.
Economic analysts consulted by Kommersant said that they agreed with the regulator's estimates. Moreover, Kommersant even published the figure, $48 billion, on October 31, with reference to estimates calculated by Rory A. MacFarquhar from Goldman Sachs.
However, the fundamental reasons for capital outflow have become weaker in the past few weeks. Alexander Morozov from HSBC said factors other than the regulator's policy are helping to reduce it.
The stock market downslide stopped in November, somewhat easing the worries of companies facing margin calls.
Analysts surveyed by Kommersant are convinced that October's outflow of capital won't repeat itself, and that the public will now exert higher pressure on the rouble than banks.
"The Central Bank's interventions on the open market during five working days in November totalled $2.5-$4 billion, while the outflow was not higher than $3 billion, according to my estimates," Mr Morozov added. He estimated that capital outflow in November and December would not exceed $20-$30 billion.
Yulia Tseplyayeva from Merrill Lynch also thinks that $25-$30 will flow out of Russia in November-December.
Yekaterina Malofeyeva from Renaissance Capital cited similar figures.
Economic estimates suggest that this year's net outflow will amount to $70-$80 billion. Net capital inflow in 2006 and 2007 was $41.8 billion and $83.1 billion, respectively.
Mikhail Khromov, an analyst with the strategic research centre at the Bank of Moscow, said that in August and September, the outflow was mainly caused by Russian banks accumulating foreign assets ($24.6 billion, almost as much as the annual outflows in 2006 and 2007).
The increase in Russian bank lending to non-residents during that period was also comparable to government financial assistance provided to the sector. In other words, instead of compensating for the shortcomings of foreign liabilities, government support in fact encouraged the outflow of bank assets.
The regulator responded to the capital drain by leaving the foreign currency swap market and issuing unsecured loans, while simultaneously limiting the size of foreign assets.
The next step the Government took to curb capital outflow was the Prime Minister's aforementioned meeting with bankers and military and security officials.
On Tuesday, President Medvedev said the outflow of capital had to be monitored "manually".
Russian banks' foreign transactions will probably be put under tighter police surveillance. The Prime Minister began reshuffling the country's Financial Monitoring Service Monday by firing Sergei Osipov, Secretary of State and Deputy Head of the Service.
The Government and the Bank of Russia seem to have had some success, though not quite as they expected. Banks stopped channeling abroad the money they get as government support, and are instead sending it back to the regulator.
According to the Central Bank's statistics, the balance of commercial banks' accounts with the Bank of Russia grew from 223.4 billion to 414.9 billion roubles between November 1 and 11, while the banking sector's total liquidity is nearing 1 trillion roubles.
