Emerging Markets: Russian International Reserves Decline

Russia’s international reserves declined for the second straight week as the strengthening dollar caused a currency revaluation. The world’s third-largest stockpile declined $1.1bn in the week to April 10 to $383.9bn, the Moscow-based central bank said yesterday. Reserves dropped $3bn in the previous week for the first fall in three weeks.

“We put the fall in foreign currency reserves down to last week’s euro-dollar downside,” Martin Blum, head of emerging markets economics and currency strategy at UniCredit SpA. The euro dropped 2.2 percent against the dollar last week, while the pound lost 1.1 percent. Russia’s reserves are made up of 45 percent dollars, 44 percent euros, 10 percent pounds and 1 percent yen, said Sergey Ignatiev, Central Bank‘s chief. Adjusted for currency moves, UniCredit estimates Russia’s central bank bought $2.6bn last week. Bank Rossii bought more than $3bn in the first half of April according to First Deputy Chairman Alexei Ulyukayev.

In March, the central bank bought $4bn, VTB Group said in a report last week. Net household demand for foreign currency in Russia has dropped to almost zero, according to the investment bank.

Also last week Gazpromneft, the oil arm of gas export monopoly Gazprom, has sold a 10bn rouble ($299.3ml) bond as demand for local- currency top-quality debt picks up as the rouble strengthens. Gazpromneft said on Friday it had closed books for its debut bond and set a coupon rate at 16.70 percent, doubling the final size of the issue from the originally planned 5bn roubles.

Analysts said the placement was successful due to solid demand from investors seeking to benefit from expected central bank rate cuts and the strengthening of the rouble. Analysts said Russia’s rouble bond market, estimated at about $60bn in January, is reviving now that Russia has declared an end to the slow-burn rouble devaluation. With the currency stabilizing, demand is  picking up for debt of highly rated issuers — the City of Moscow placed a 8.4bn rouble bond on Wednesday with 17.1 percent yield.

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