Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

UPDATE 1-Rouble weakens after c.bank puts rates on hold

Published 01/31/2011, 06:29 AM
Updated 01/31/2011, 06:32 AM

* Rouble weakens after cbank holds rates

* Outlook still sound, strong oil supports

(Recasts with reaction to central bank)

MOSCOW, Jan 31 (Reuters) - Russia's rouble weakened on Monday after the central bank dashed expectations of a rise in interest rates, also hurt by a sell-off of riskier assets on global markets, although high oil prices capped losses.

The central bank caught most market participants unaware by leaving rates on hold despite surging inflation, and instead increased banks' reserves requirements -- especially for non-residents. [ID:nLDE70U0I5]

Higher interest rates would have added to returns on the rouble while reserve requirements are seen only pruning the currently excessive levels of liquidity by around 100 billion roubles ($3.36 billion), according to Raiffeisen bank estimates.

The total level of rouble liquidity stands at above 1 trillion roubles ($33.58 billion). The bank also pointed to concerns over capital inflows as a reason for raising reserve rates -- which may help deter excessive flows.

"Most analysts had predicted the central bank would hike interest rates. I think such a decision is stipulated by central bank's awareness of hot capital inflows," said Maxim Oreshkin, chief Russia economist at Credit Agricole.

Denis Korshilov, a dealer at Citi bank, said the bank's decision had prompted some players to lock in profits on long rouble positions on the last trading day of the month.

Most analysts, however, said Russia's economic fundamentals still supported more gains for the rouble.

Strong oil prices above $90 per barrel [O/R] are keeping Russia in a current account surplus, while its borrowing plans, including the first-ever rouble Eurobond, may spur capital inflows. [ID:nLDE70R1W8]

Market players say the level of 34.50 roubles against the basket may serve as resistance for further rallies in the Russian unit as the central bank is expected to step in the market buying some $150 million a day in the range of 34.0-34.5.

"While we remain bullish, the pace of upside is likely to slow. We are approaching levels where the Central Bank of Russia will begin accumulating dollars in decent size, providing a headwind," analysts at Morgan Stanley said.

By 1030 GMT, the rouble gave up 11 kopecks to 29.82 against the dollar . It also weakened 3 kopecks to 40.73 versus the euro .

Against the euro-dollar basket, used by the central bank to monitor exchange rates, the rouble weakened to 34.71 compared with levels of around 34.65 seen before the rate decision and 34.64 at Friday's closing.

(Reporting by Andrey Ostroukh and Vladimir Abramov; Editing by Patrick Graham)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.