De-dollarisation of Russian accounts: media catching up, but risks remain

[temperament5]

By: Constantin Gurdgiev

March 26, 2015

Wall Street Examiner.com

 

 

Russian households are starting de-dolarising their accounts in the wake of some regained confidence in the Ruble and the banking sector.

 

However, not all is well, still and risks remain.  Here is the BOFIT analysis of the forward risks relation to oil prices and the banking sector: "If the oil price remains, as assumed, at around USD $55 a barrel, and despite saving decisions, the federal budget deficit is set to grow so large in 2015 (to about 3.5% of GDP) that the government Reserve Fund may be eroded by as much as half.  It is possible that support measures will be implemented using government bonds (as in the bank support operations in December, 2014 which amounted to 1.4% of GDP).  The support operations can also draw on debtors' bonds (as in the funding of the state-owned oil giant Rosneft, which was just under 1% of GDP).  Where necessary, banks can use both instruments as collateral against even relatively long-term central bank funding.  Recourse to the central bank has already become more substantial than ever before."

 

And more: in the face of oil price risks, "Bank panic situations where households and enterprises withdraw their funds from banks are possible, even though the authorities have intensified banking supervision.  On the other hand, the Bank of Russia is ready to take immediate support measures."

 

All of which means that from the macroeconomic perspective, the current reprieve in dollarization trends can be temporary.  Over the next six months, I still expect continued decline in investment, with private sector capex depressed by a number of factors that are still at play: the Ukranian crisis, the looming threat of deeper sanctions and oil price risks.  State enterprises and larger state banks are likely to continue back on large debt-funded investments and more resources will continue to outflow on redemption of maturing corporate and banking debt.

 

So keep that seat belt fastened: the bumpy ride isn't over, yet.

[vietnam1969]

Thanks temperament5 for the post. Let's see what happens next.

[haymon]

Thanks