March brought the Bank of Russia a record reduction since 2018 in its gold and foreign exchange reserves.
Despite the fact that the Central Bank buys foreign currency every day to replenish the National Welfare Fund and last month replenished the fund by $ 2 billion.
Nevertheless, the gold and foreign exchange reserves under the control of the central bank fell by $ 13 billion and were at the lowest level since July last year – $ 573.322 billion.
Almost 40% of losses in reserves came from gold. At the beginning of the month, the Central Bank held 73.8 million troy ounces, which were worth $ 130.3 billion.
But the fall in gold prices, which hit a 9-month low in March, cut off $ 5.1 billion from those investments. In monetary terms, the gold reserve of the Central Bank has grown thinner to a minimum for the year – $ 120.287 billion.
Once again, the yuan is turning into a headache for the Russian financial authorities. Following the Kremlin’s directive towards the eastern turn of the economy, the Central Bank transferred 15% of its reserves to Chinese currency, and in February 2021 the Ministry of Finance followed its example.
In total, about $ 87 billion of Russian reserves (including the NWF) were invested in the yuan, which began to fall in price again in March. A 1.7% decline in the exchange rate, a record since August 2019, brought about $ 1.3 billion in exchange rate losses to the Ministry of Finance and the Central Bank.
The Central Bank lost the remaining 6.6 billion dollars due to the depreciation of other currencies in which the gold and foreign exchange reserves were invested. In March, the euro (29% of reserves) fell by 3%, the British pound – by 1.2%, and the dollar index, which reflects the rate against six key currencies, updated its maximum since November last year.
The dollar is strengthening amid optimistic forecasts for the American economy: the IMF expects the United States to become the only developed country that will fully recover from the effects of the pandemic by the end of 2021.
According to the fund’s forecast, the American GDP after a drawdown of 3.5% will grow by 6%, thanks to three packages of injections into the economy – by $ 3 trillion under the Donald Trump administration and another 2 trillion under Joe Biden.
The rise in US government bond yields hit low-yielding currencies – the euro, yen and the Swiss franc, but this process reversed in April, said John Hardy, chief currency strategist at Saxo Bank.
Interest rates on 10-year Treasuries, which reached 1.77%, fell to 1.64%, and the dollar index is losing ground in Forex. The market may have believed the Fed’s inflation and growth forecasts in the US: a brief overheating of inflation and then a quick fade due to the perceived lack of major new stimulus packages after the current quarter, Hardy said.
