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UPDATE 2-Russia economy, rouble to weather euro woes: c.bank

Published 05/27/2010, 08:19 AM
Updated 05/27/2010, 08:23 AM
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* C.bank: euro swings no threat to Russia economy, rouble

* No changes in FX reserves structure discussed

* C.bank says rouble's rate reflects global volatility

* Wants to contain inflation to no more than 7 pct

(Recasts with more quotes, adds detail)

By Dmitry Sergeyev and Oksana Kobzeva

ST PETERSBURG, Russia, May 27 (Reuters) - Russia's economy and currency should weather the euro zone crisis without serious implications and there is no need to change the structure of reserves, Central Bank Chairman Sergei Ignatyev said.

"The (euro zone) problem is more political than economic," he said on Thursday. "With swift coordinated actions of European nations, the problem is fully solvable."

The Greek debt crisis has sent a shiver through investors across the globe who rushed to ditch the euro for dollars and gold.

Ignatyev called the recent swings in the euro normal and said no changes to the structure of the central bank's gold and foreign exchange reserves -- the world's third largest worth some $450 billion [ID:nMOS007572] -- have been discussed.

"We are conservative, we do not change the structure of currency reserves -- at least in recent months," he told reporters. "The euro moves one way, another way -- one should get used to it."

Asked whether there were any plans to sell European assets from reserves, Ignatyev replied: "For now, I do not feel panic."

As of end 2009, 2.9 percent of the central bank's assets were held in Spanish assets and 0.4 percent in Italian ones.

Nominally, Russia keeps the FX portion of its reserves in 47 percent U.S. dollars, 41 percent euros, 10 percent sterling and 2 percent yen. [ID:nLDE634089] It has been gradually increasing the volume of gold, a trend Ignatyev said would likely continue.

FITTING FX INTERVENTION MECHANISM

As a result of the euro zone crisis, though, financial markets have become jittery and prices for oil and other goods have slumped -- affecting the Russian currency.

The rouble is slowly recovering from an 8-1/2 month low versus the dollar of 31.69 earlier this week, trading at 30.78 per dollar on Thursday . [ID:nLDE64Q0HQ]

Ignatyev said the currency remains under the regulator's control -- even if the control has softened somewhat.

"The exchange rate regime reflects much better the current volatile situation on global financial and goods markets," he said, adding later that exchange rate fluctuations of 2-3 percent a day are normal.

"The mechanism (of interventions) is very successful and corresponds to the situation and swiftly adapts to a new situation," Ignatyev said.

The central bank keeps the rouble within a floating corridor against a euro-dollar basket , shifting the band by 5 kopecks for each $700 million of interventions in the boundary. In addition, it buys up to $250-300 million a day in "planned" interventions within the band.

Ignatyev said interventions have totalled around $5 billion so far this month.

CONTAINING INFLATION A PRIORITY

Ignatyev declined to comment on whether the central bank would continue its 1-year-old monetary easing cycle -- which has slashed the refinancing rate by 400 basis points to a historic low of 8.00 percent -- with another cut this month.

"The central bank intends to follow monetary policy so as on the one hand to stimulate the growth of bank lending and thus economic growth, and on the other hand not allow inflation to exceed 7 percent this year or next," he told a banking forum.

He said year-on-year inflation was running at 5.7 percent as of May 24.

Economists and officials expect the inflation rate to increase in the second half of 2010, with pressure from stronger domestic demand and a traditional end-of-year increase in federal expenditures.

Ignatyev said inflation will also determine any need to increase minimum reserve requirements towards the end of the year, a move which would curb the volume of liquidity in the banking system. (Reporting by Dmitry Sergeyev; Writing by Toni Vorobyova and Lidia Kelly; Editing by Ruth Pitchford)

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