JPMorgan, Wells Fargo, and Citi are all set to release earnings prior to the New York bell with Saxo Bank head of equity strategy Peter Garnry bullish on trading income, commercial banking, and – Trump permitting, of course – stock markets in general.
Article / 09 September 2016 at 10:00 GMT

Central bank of Russia carries on the balancing act

Russia oil and gas expert
United Kingdom
  • Russia's Reserve Fund more than halved nominally in last 12 months
  • Rate of depletion would see fund at zero in 2017
  • Reality is that Russia's total FX reserves are on the rise
  • Central bank is holding onto FX and printing money to cover budget deficit
  • Macro stability dominating agenda and central-bank policy accordingly


The central bank is determined to follow a path that ensures macro stability. Photo: iStock

By Nadia Kazakova

On paper, Russia's Reserve Fund has more than halved over the last 12 months, down from $71 billion to $32 billion as of September 1, 2016. Normally, it would imply that the Russian government has been spending FX reserves to cover the budget deficit and the Russian reserves should have declined accordingly. 

Russia's Reserve Fund balances and transfers in 2015-16, RUB and USD billion

The government has spent some RUB 1.17 trillion ($18 billion) from the fund since the start of the year to cover budget deficit. The bulk of the spending, however, is likely to happen in the coming months as it did last year. It would more or less deplete the Reserve Fund by early-mid next year (depending on the oil price and privatisation deals). 

The government would then have to move on to spend the National Wealth Fund, which stood at $72.7 billion as of September 1, 2016. Excluding money already invested, liquid FX assets amounted to around $48 billion. There was media speculation that funding of various infrastructure projects from the National Wealth Fund might be subject to revision. Presumably, to save fund's money. 

Most of it, however, is happening notionally. In reality, Russia's total FX reserves are on the rise, which indicates that the central bank holds on to FX and prints money to cover budget deficit. It has been happening throughout this year and is unlikely to change in 2017.

While most of the $26.7 billion increase in FX reserves this year is down to repayment of REPO loans ($11bn) and gold ($4bn in purchases and $11bn in revaluation), there is not a sign of spending of the Reserve Fund. Its decline seems to be a simple reclassification into Other FX reserves. The last time the central bank sold FX was in early February 2015. 

Russia's FX reserves break-down, USD billion

To the central bank's credit, it tries hard to mop up some of the newly printed roubles from the system. The macro stability (low inflation, stable rouble) seems to be the name of the game and it requires the central bank to play accordingly. 

Since last year, the central bank has been cutting back on its short-term loans to the banking sector. From early August the central bank re-started its deposit auctions, taking some excess RUB 100-200 billion from the Russian banks (mostly on weekly basis), paying 10.2-10.4% annual rate for the privilege. 

Another, more drastic tool has also been used. It is an increase in reserve requirements (proportion of clients' deposits to be held at the central bank, which earn zero for Russian banks), with three rises so far this year. According to Fitch's latest Russian Bank Datawatch,, higher reserves might absorb some RUB 600-800 billion from the banking system this year. 

The problem, of course, is that the banking sector has less incentive in making loans (and give a little push to the economy), when risk-free rates of over 10%/annum is on offer from the central bank and higher reserves mean less money available for lending. 

It seems to be a price that the Russian central bank is prepared to pay for holding on to the precious FX and for achieving the all important goal of macro stability.

- Edited by Martin O'Rourke

Nadia Kazakova is an oil and gas expert on Russia


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail