MOSCOW, Oct 14 (Reuters) – Russia’s central bank has seen an influx of foreign investors buying OFZ treasury bonds on the secondary market, an official said, as high yields outweigh the risks of sanctions for some.
The Russian central bank has raised its key interest rate five times this year to rein in growing consumer prices and said more increases from the current level of 6.75% were possible to bring inflation down to its 4% target.
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 U.S. and European Union investors remain the main foreign buyers of rouble-denominated OFZ bonds, despite U.S. sanctions, with China accounting for around 4%.
The latest sanctions barred U.S.-based investors from purchasing OFZs directly from Russia from mid-June, but did not ban buying the bonds on the secondary market.
“After the introduction of sanctions on June 14, non-residents’ share on the OFZ market increased by 2.1 percentage points to 21%,” Danilova told Reuters.
Since then, foreign purchases of the bonds directly from the finance ministry accounted for 36% of the overall increase in their share in OFZs, which Russia uses to plug budget holes, Danilova added in an interview.
The central bank has regulatory tools to support the OFZ market if needed, should Washington expand its sanctions onto the secondary OFZ market, Danilova said. Russian banks can also increase their OFZ holdings, she added.
“It is important that we have domestic demand as well. OFZ holdings of our banks equal to 7.8% of their assets, which is relatively small compared to other countries,” Danilova said.
Separately, the central bank saw no systemic risks in an increased demand for foreign stocks from Russian households, even though it could pressure the rouble, Danilova added.
“Before the pandemic, forex was mainly bought for travels abroad, now also to buy foreign stocks,” she said.
Since the West slapped sanctions on Russia for annexing Crimea from Ukraine in 2014, the central bank has stepped up efforts to cut the share of non-rouble assets in the economy to ensure macro-stability during financial market turbulence.
The share of foreign currency in household assets, including stocks and deposits, has been relatively steady at 22%, which the central bank has no plans to lower, Danilova said.
But the central bank is not willing to encourage buying of foreign companies’ shares either, she said. (Writing by Katya Golubkova; Editing by Andrey Ostroukh and Alexander Smith)