As Economy Falters, Russia Strengthens Its Balance Sheet
Despite the plunge in the price of oil, and a worsening economic outlook, the Central Bank of Russia has increased its overall foreign reserves year over year – the only emerging market country to do so.
Russia’s GDP shrank 2.5% in January after shrinking 3.5% in December and the outlook according to the Russian Central Bank is for no improvement anytime soon. Inflation is running around ten percent annually and the Russian Ruble has fallen against the dollar adding to inflationary pressures. The Bank of Russia has had interest rates at 11% since July 2015.
Yet, rather than draw down reserves, the Russian Central Bank is growing them. According to the Russian Central Bank, Russia’s official reserves assets were $380,544.3 million in February 2016, up from $371,559.1 million in January 2016. In a November 2015, interview with Tass, the head of Russia’s Central Bank, Elvira Nabiullina said that it was the goal of Russia’s Central Bank to build its foreign reserves to $500 billion over the next five-seven years, while reducing inflation.
Progress on the inflation front has been made with inflation recently dipping below ten percent annually from 16% last fall. Ms. Nabiullina is optimistic that inflation can be brought down to 4% by 2017.
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A good portion of the increase in Russia’s foreign reserves over the past year has come in the form of gold.
Russia is one of the top three gold producing nations in the world. In 2015, Russia produced about 291 tonnes of gold and added 208 tonnes of gold to reserves. Since 2009, Russia has added more than 822 tons of gold to its reserves.
During the same time period China added 734 tonnes of gold to her reserves. According to the Central Bank of Russia, total gold reserves stood at 46.5 million ounces, or over 1,446 tonnes at the end of February. Russia’s gold reserves place it sixth in the world behind (in reverse order) China, France, Italy, Germany and the United States.
Russia has added over 195 tonnes of gold to her reserves from June 2015 to February 2016.
Russia’s U.S. Treasury Bond reserves have grown over the last year to $96.9 billion up from $82.2 billion in January 2015 but down from $131.8 billion in January 2014.
Russia has included adding U.S Treasury Bonds as part of its plan to increase foreign reserves.
This article does not necessarily reflect the explicit views of BGASC, nor should it be construed as financial advice.