Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

UPDATE 2-Russia c.bank devalues rouble for 4th time in a month

Published 12/05/2008, 07:09 AM
Updated 12/05/2008, 07:15 AM

(Adds c.bank source, dealer quote, details)

By Yelena Fabrichnaya and Gleb Bryanski

MOSCOW, Dec 5 (Reuters) - Russia's central bank moved to widen the rouble's trading band on Friday, opening the door to a fourth devaluation within a month, and the currency weakened to 31.62 from 31.30 against its dollar/euro basket.

The move comes one day after Russia's gold and foreign exchange reserves posted their first weekly rise in two months, enabling Prime Minister Vladimir Putin to say the cash will help the economy weather the global crisis.

The central bank was forced to let the rouble depreciate in three one-percent steps against a euro-dollar basket last month as prices for oil, Russia's main source of foreign currency revenues, fell sharply.

A source in the central bank confirmed the trading band had been widened further. Dealers said the regulator had changed the level at which it intervenes to support the rouble.

"Looks like they have found a new level, otherwise they would not sell (dollars). I think it will be another 30 kopecks (0.3 roubles)," said Gazprombank's chief trader Viktor Kholoshnoi.

The rouble traded at 31.5647 against the basket at 1125 GMT.

The central bank runs a managed float of the rouble, keeping it within a corridor against the basket, made of 0.55 dollars and 0.45 euros. Given low oil prices and persistent capital outflows, the rouble will tend to weaken after a band widening.

SCEPTICAL

Economists polled by Reuters last month expect the rouble to weaken further against the basket to 33.44 by the end of 2009. The rouble is down by 20 percent from its July peak against the dollar, reflecting broad-based strengthening of the greenback.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

The central bank declined to comment on the latest move officially. Economists, meanwhile, are split over what the central bank should do.

Troika Dialog analyst Evgeny Gavrilenkov said a large one-time devaluation would be a useful step towards the rouble's float, proclaimed by the central bank as a medium-term target, and a weaker currency would help industry. Others disagreed.

"We are sceptical about the possibility of bigger rouble devaluation as it would fuel inflation, and potentially lead to rising social tensions," said ING analyst Tatiana Orlova.

Russian households closely watch the dollar exchange rate. With the central bank data showing an "unprecedented" $10.3 billion in net demand for foreign currency in October, confidence in the government's anti-crisis measures is at stake.

The government is also facing a problem channelling the money it pumps into the banking sector to enterprises with spreads between official and market interest rates at over 10 full percentage points.

The central bank has accompanied some of its devaluation moves by rate hikes, gradually moving official interest rates in real terms out of the negative territory where they have been in recent years.

On Thursday it set a higher-than-expected 8 percent interest rate at a two-week deposit auction, signalling a possibility of a further hike on Friday after a scheduled board meeting. Some analysts also questioned the logic behind the central bank's move one day after the increase in reserves.

"Does it make sense? Yesterday the central bank told the market that reserves would start to increase again and now they give in to obvious depreciation pressure again. That is a contradiction," said Ulrich Leuchtmann from Commerzbank.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

"The situation becomes more unclear. Certainly not an environment to attract foreign capital," Leuchtmann added. The central bank spent $57.5 billion in Sept-Oct to support the rouble and carried out interventions throughout November. (Additional reporting by Andrei Ostroukh and Toni Vorobyova; Reporting by Yelena Fabrichnaya, writing by Gleb Bryanski; Editing by Ruth Pitchford)

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.