Foreign investors pose potential risks to Russian finance sector stability

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© Reuters. FILE PHOTO: A Russian state flag flies over the Central Bank headquarters in Moscow, Russia March 29, 2021. A sign reads: “Bank of Russia”. REUTERS/Maxim Shemetov/File Photo

MOSCOW (Reuters) – The behaviour of foreign investors poses possible risks to the stability of Russia’s financial sector, the central bank said in a financial stability report on Thursday.

Several months ago, Russia had an influx of foreign investors who were buying OFZ treasury bonds on the secondary market as high yields outweighed the risks of Western sanctions for some.

But since then concerns about Russia’s military activity near its border with Ukraine has put pressure on Russian financial assets. The rouble has lost around 8% of its value against the dollar in the four weeks from late October and prices for OFZ treasury bonds have fallen sharply.

“At the moment, the Russian financial market is showing stability to the behaviour of non-residents,” the bank said.

“Nevertheless, changes in market conditions – for example, an increase in world interest rates, tougher sanctions (on Russia) … may lead to temporary surges of volatility in the Russian market.”

As of Nov. 18, non-residents held 20.3% of OFZ bonds that Russia uses to plug budget holes, the central bank said, down from 21.6% as of Oct. 1.

The central bank also highlighted risks of retail lending growth and interest risks in the banking sector among other possible threats to the Russian financial system.

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