Russian central bank says foreign buyers flock to secondary OFZ market

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MOSCOW, Oct 14 (Businesshala) – Russia’s central bank is seeing an influx of foreign investors buying OFZ Treasury bonds in the secondary market, an official said, as higher returns outweigh the risks of sanctions for some.

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The Russian central bank has raised its key interest rate five times this year to curb rising consumer prices, saying a hike above the current level of 6.75% is possible to bring inflation down to its 4% target.

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Russia’s economy ministry this week raised its 2021 inflation forecast to 7.4% from 5.8%.

Elizaveta Danilova, head of the central bank’s financial stability department, said despite US sanctions, US and EU investors remain the main foreign buyers of ruble-denominated OFZ bonds, in which China holds about 4%.

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The latest sanctions barred US-based investors from buying OFZs directly from Russia since mid-June, but did not ban buying bonds on the secondary market.

“After the introduction of sanctions on June 14, the share of non-residents in the OFZ market increased by 2.1 percentage points to 21%,” Danilova told Businesshala.

Since then, foreign purchases of bonds directly from the Ministry of Finance accounted for 36% of the total increase in their share in the OFZ, which Russia uses to plug the budget hole, Danilova added in an interview.

Danilova said the central bank has regulatory tools to support the OFZ market should Washington expand its restrictions on the secondary OFZ market if necessary. He said that Russian banks can also increase their OFZ holdings.

“It is important that we also have domestic demand. The OFZ holding of our banks is equal to 7.8% of their assets, which is relatively low compared to other countries,” said Danilova.

Separately, the central bank saw no systemic risk in rising demand for foreign stocks from Russian households, Danilova said, even if it could put pressure on the ruble.

“Before the pandemic, foreign exchange was mainly bought for foreign travel, now also for buying foreign stocks,” she said.

Since the West imposed sanctions on Russia for annexing Crimea from Ukraine in 2014, the central bank has intensified efforts to cut the share of non-ruble assets in the economy to ensure macro-stability during financial market turmoil. have make.

Danilova said the share of foreign currency in domestic assets, including stocks and deposits, has remained relatively stable at 22%, which the central bank has no plans to reduce.

But the central bank is unwilling to encourage the purchase of shares of foreign companies, she said. (Written by Katya Golubkova; Editing by Andrey Ostrokh and Alexander Smith)

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