Russia Central Bank Wants to Boost Gold, FX Reserves to $500B in Few Years 

The Bank of Russia plans to boost its depleted international reserves to $500 billion to hedge the crisis-struck economy against capital flight and new shocks, the central bank chairwoman said Thursday.

Speaking at a banking conference, Elvira Nabiullina said the current level of Russia’s reserves look sufficient but the country would need coffers big enough to cover possible “substantial capital outflows over two or three years.”

Russia lost more than $150 billion in net capital outflows in 2014 on the back of Western sanctions and a drop in oil prices. To support the embattled ruble the Bank of Russia sold billions of dollars of foreign currency over the past year, which sent foreign-exchange reserves to around $385 billion in early 2015 from some $510 billion a year earlier. To beef up reserves, the central bank started buying around $200 million a day in mid-May.

Russia also needs reserves to cover outstanding foreign debt at times when commodity exports remain the only reliable source of foreign currency as capital markets are closed for Russian borrowers due to Western sanctions.

But one shouldn’t expect exports to thrive as oil prices are now some 1.5 times below the average level of the past five years, Ms. Nabiullina said.

“The current economic indicators are better than economists had expected. But it’s too premature to say that all the crisis developments are behind… One should not bet that exports will pull the economy [out of the crisis],” Ms. Nabiullina.

In what seemed to contrast with claims that the foreign-exchange crisis was overblown by government officials, Ms. Nabiullina warned the shortfall in reserves could be between $150 billion and $170 billion in 2015 compared with a year ago due to lower exports.

The central bank’s governor also said interest rates will move lower but the pace of cuts would be gradual to avoid destabilizing the ruble and stoking inflation. The central bank will next meet on rates on June 15.

Source: WSJ – Russia Central Bank Wants to Boost Gold, FX Reserves to $500B in Few Years

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