Updated August 15, 200 8

During August 2-8, the Central Bank's (CB) international reserves grew $200 million only. The core reason is the euro weakening to the US $. According to some economists, a week before the military operations started in South Ossetia the market observed the foreign capital inflow of $4-5 billion. On August, 8, on the background of a panic at the currency market, it was replaced by the sharp outflow. Both economists and the CB's representatives hope it ends soon.

On August, 14, the CB reported about the change of the international reserves' level (the present name for gold and currency reserves) for August, 2-8.

Within the accounting period they surged to the historically maximum levels of $597,5 billion. However, the reserves' growth totaled $200 million only – the minimum index since March, 2008.

"It is quite surprising that during the first week of August we observed some reserves' growth at all, taking to account the major rates change of the euro to the dollar and prices for gold. In terms of revaluation, the reserves lost nearly $9 billion for the week", Rory MacFarquhar from Goldman Sachs marks.

According to the estimations of Aleksey Moiseev from Renaissance Capital Investment Company, due to the US $ strengthening to the euro, the CB's international reserves were overvalued for $11 billion.

It means that there was the net foreign capital inflow to Russia during the first week of August, as the economists surveyed marked.

In the unchanging currencies' rates and prices for gold, in the current payments position, the international reserves' growth corresponds to the zero capital inflow at nearly $5 billion. Calculations of the net capital inflow for August, 2-8, range from about $4 billion (Goldman Sachs) to $5 billion (ING Russia, Renaissance Capital).

However, on Friday, August, 8, at the currency market started some panic followed by the total sale of ruble assets and the ruble drop to the dual

currency basket. Thus, the CB was actively selling dollars to nonresidents, as Stanislas Ponomarenko from ING Russia reminds. On August, 11, the Ministry of Finance head Aleksey Kudrin declared that there was the capital outflow on August, 8.

Mr. Ponomarenko estimates the Friday outflow at $7 billion.

In the CB agree that the war conflict in South Ossetia

provokes the short-term capital outflow.

CB's first deputy chairman Aleksey Ulyukaev reported about this on Tuesday, August, 12, and marked that it wouldn't influence on the situation with the capital inflow in 3Q. It is better to remind that in 2008 the CB expects the net capital inflow at $40 billion level. "According to the results of 1H, our inflow was $13 billion, and we had some inflow in July as well.

I think that there will be some net capital inflow in Russia in 3Q and it continues in 4Q as well", Mr. Ulyukaev said. Moreover, he marked that Russia would take advantage of the short-term capital outflow.

When the CB steps up the reserve requirements and the ruble exchange-rate range, the bank ousts the short-term borrowings in order to make the foreign capital inflow more stable and predictable, and to attain a drop of a money offer growth and inflation as well.

The capital outflow will not be scale and long-term, as the economists hope.

"I think that everything calms down soon. The oil dollars continue stably coming to Russia", Aleksey Moiseev marks. Rory MacFarquhar is less confident: "We think that the capital inflow will suffer from the political climate tightening, but we continue seeing a potential for the ruble strengthening in the nearest months". Still Yaroslav Lisovolik and Georgy Kartashev from Deutsche Bank examine the scenario of the capital outflow in the published review devoted to the consequences of the war conflict in South Ossetia.

Thus, as per their estimations, even under the worst scenario, the growth rates of investments will fall by 2-3%, and GDP – by 0,4-0,5%.