Russia’s Foreign Assets Fall to Record Low

Russia’s reserves of foreign assets fell by $15.7 billion in one week as the ruble saw signs of strength.

The Russian government continues to sell foreign reserves in an attempt to keep the ruble from falling, causing the nation’s foreign reserves to fall to $399 billion by December 19, and 22% below the peak holdings for the country. Russian authorities raised interest rates but so far resisted instituting capital controls that would limit the amount of rubles sold on open markets.

Russia’s reserves of foreign assets fell by $15.7 billion in one week as the ruble saw signs of strength.

The Russian government continues to sell foreign reserves in an attempt to keep the ruble from falling, causing the nation’s foreign reserves to fall to $399 billion by December 19, and 22% below the peak holdings for the country. Russian authorities raised interest rates but so far resisted instituting capital controls that would limit the amount of rubles sold on open markets.

The ruble has fallen 27% in the past three months against the dollar, falling to a record low on December 16. It has since recovered, and rose in trading in Moscow on Thursday. The overnight lending rate rose to over 20% earlier this month, but has fallen to 18.75% as the ruble stabilizes.

Bank Recapitalization

Russia has demanded that Gazprom, the largest company in Russia that exports gas to nations in Europe, exchange foreign currencies received for sales for rubles, which would help recapitalize local banks’ domestic currency reserves. Russia’s central bank has already bailed out one bank, and more bailouts are expected.

The Russian Deposit Insurance Agency recently received authority from parliament to allow it to purchase equity in banks that would help them recapitalize and avoid default. The Bank of Russia has also extended dollar and euro-denominated short-term loans to help them pay off debts in foreign currencies.

The recent fall in oil-based revenues has hit Russian companies unusually hard, after sanctions in the United States and Europe caused firms to save as many foreign currency-denominated assets as possible. Earlier in 2014, sanctions involving Russia’s invasion of the Crimea region caused many Russian firms to store as foreign currency reserves as possible, lowering foreign-currency liquidity in Russia just before the ruble’s decline amidst falling oil prices.

Analysts believe more Russian firms will begin exchanged foreign currencies for rubles, and that the government may have released an edict to companies ordering them to store more rubles.

China Reserve Requirements

While Russia is facing falling international reserves, rumors are that China will waive a requirement that banks set aside reserves in some situations, Bloomberg News reported. The lifted requirements would likely boost lending and offer greater liquidity that could help the nation’s economy from seeing further slowing after GDP growth continued to decelerate throughout 2014.

In November, China announced that it would ease reporting requirements for financial institutions in an effort to boost lending. Additionally, the People’s Bank of China also increased available credit repeatedly in the past quarter.

Changes to deposit regulations may make over $1 trillion available as new loans, reclassifying 7 trillion yuan as deposits and cutting reserve ratios by the PBOC.

Chinese stocks have risen recently on liquidity rises, causing the Shanghai Shenzhen 300 to jump over 3% in trading on Thursday. The Shanghai index has risen over 43% year-to-date, with almost all of those gains happening since the second half of November, when China began increasing lending liquidity.