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Foreign investors pose potential risks to Russian finance sector stability

by Mike Robinson

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© Reuters. FILEPHOTO: The Central Bank’s Moscow headquarters is covered by a Russian state flag on March 29th, 2021. The sign says “Bank of Russia.” REUTERS/Maxim Shemetov/File Photo

MOSCOW (Reuters), – Foreign investors could pose risks to Russia’s financial stability, according to the central bank in a report on financial stability.

Russia experienced an inflow of foreign investors buying OFZ Treasury Bonds on the Secondary Market several months back. The high yields were outweighing the risk of Western sanctions.

However, Russian financial assets have been under pressure since October due to concerns over Russia’s military activities near the border with Ukraine. Since late October, around 8% has been lost in the Russian ruble against the US dollar. Prices for OFZ Treasury Bonds have also fallen significantly.

The bank stated that the Russian financial markets are showing stability in dealing with non-residents at the moment.

“Nevertheless, market changes – such as an increase of world interest rates and tougher sanctions (on Russia),… could lead to temporarily high levels of volatility on the Russian market.”

The central bank reported that non-residents had 20.3% of the OFZ bonds Russia used to fill budget gaps as of November 18. This is a decrease of 21.6% in Oct. 1.

The Russian central bank highlighted the risks associated with retail lending growth, interest risk in the banking sector and other potential threats to Russia’s financial system.

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