Russian money pouring out as foreign assets shine

The Central Bank of Russia (CBR) expects $70 billion net private capital outflow from the country in 2011, against an earlier projected $36 billion.

­The Central Bank has also lowered its forecast on international reserves from $515 billion to $495 billion.

“An important factor behind escalating capital outflow is investor fear that growing economic volatility on global financial markets could lead to a sale of Russian assets in favor of less vulnerable foreign assets, particularly with the unfavorable investment climate in the Russian economy,” a firmed-up draft of monetary-lending policy for 2012-2014 reads.

The forecast for Russian capital outflow is still lower than the figures the country saw in 2008, when $130.5 billion poured out on fears of economic collapse. Over the following years of ups and downs in the Russian economy, capital outflow decreased, falling to $38.3 in 2010.

However, over the last 9 months of 2011, net capital outflow reached $49.3 billion, including $13 billion in September alone.

Two weeks ago Aleksey Ulyukayev, First Deputy Head of CBR, reported a sale of $14 billion on the market, which resulted in a moderate “14% devaluation since August, followed by a 10% backup, which meant there was no need for significant spending from reserves,” Ulyukayev said.

Anton Safonov, analyst at InvestCafe says the earlier forecast was too optimistic.
“The decision was expected, and the present forecast is close to reality, a negative situation associated with a strong outflow of capital will persist long enough, at least until mid-2012 and it is, first of all, the result of increasing interest in foreign assets.”

Safonov expects that the year-end rate of capital outflow will exceed the level of 2009, when $56.9 billion streamed out of Russia,“and even in case of an upside-down situation on the markets, capital outflow will be at least $65 billion.”