In July, the country's wide monetary base fell by 70.9 billion rubles or 3.6% to 1,849 billion rubles, the Russian Central Bank reported on Friday.
(The wide monetary base includes cash, banks' balance on obligatory reserves accounts, correspondent accounts and deposits of the Central Bank, as well as the Central Bank's other liabilities for bank operations in national currency.)
Analysts believe the main reason for the decline is capital outflow. According to the Central Bank, net private capital outflow from Russia amounted to 5.5 billion in the first six months of 2004, and the situation did not improve in July. Tens of billions roubles released after the Bank reduced deductions to the obligatory reserves fund from 7% to 3.5% were most probably used to purchase currency, believes Nikolai Kashcheyev, analyst with Trast Bank.
"With a monthly surplus of trade balance of $6 billion, the country should receive about $4.5 billion, but recently there has been a surge in demand for foreign assets on the part of all agents and the Central Bank has practically ceased to purchase currency, which affects the monetary base," explains Yevgeny Gavrilenkov, chief economist with the Troika Dialog investment company. He believes that the scale of capital outflow in July can be influenced by summer vacations of manages of foreign investment funds, who are not ready to leave money in Russia while the situation is unstable. According to Kirill Tremasov, head of the Bank of Moscow analytical department, speculative money that began leaving in April was in July followed by conservative investors as the development around Yukos escalated.
Stagnation of the monetary base was one of thekey reasons of the banking crisis that took place in the spring-summer this year, recalls Natalia Orlova, economist with Alfa Bank.
"Tension with liquidity will lead to an increase in loan interest rates, and the pace of economic growth will slow down," Mr. Tremasov forecasts. Worsened loan conditions will stall investment activities of enterprises and in several months may result in slowed down production growth, adds Mr. Gavrilenkov.
