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Russia sees US$5b capital inflow in Q3 as conditions stabilise

[MOSCOW] Russia saw a net capital inflow of US$5.3 billion in the third quarter, central bank data showed on Friday, a turnaround from steep outflows in preceding quarters that suggests financial conditions are stabilising.

The last time Russia saw a comparable quarterly capital inflow was in the second quarter of 2010. Since then, the price of oil has halved and sanctions over the Ukraine conflict have spooked investors. "This time around, foreign debt repayments were almost completely financed by banks and companies using foreign-currency assets they had accumulated," said Oleg Kouzmin, an economist at Renaissance Capital. "That allowed for a significant improvement in indicators on the financial account." Since last year, Russian companies have had restricted access to international capital markets because of sanctions over Ukraine, so money flowing out of the country for foreign debt repayments has barely been counterbalanced by new international lending to Russia.

But in the third quarter, Russian firms selling foreign-currency assets helped bring an inflow of capital on the financial account.

Despite the third-quarter figures, Russia registered a capital outflow for the first nine months of US$45 billion, versus an outflow of US$76.8 billion in the same period of 2014, the central bank's preliminary balance of payments data showed.

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Some analysts said the improvement in the third-quarter data also reflected better market sentiment towards Russia. "The market might be getting ahead of itself in that latter respect, depending on Syria outcomes, but it is what the market thinks," said Tim Ash, senior CEEMEA desk strategist at Nomura. "They seem to think that Russian actions will create leverage with the West to secure concessions over sanctions and Ukraine." Markets have so far shrugged off Russia's military campaign in Syria, but some analysts have said it could lead to a compromise with the West over the Ukraine conflict.

Russia's current account surplus in the third quarter was US$5.4 billion, the central bank data also showed. Russia's balance of trade was at US$28.2 billion, sharply lower due to weak oil prices.