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UPDATE 2-Putin highlights renewed rise in Russia reserves

Published 12/04/2008, 09:19 AM
Updated 12/04/2008, 09:22 AM

(Adds Putin, details, background, analysts)

By Toni Vorobyova

MOSCOW, Dec 4 (Reuters) - Russia's gold and foreign exchange reserves posted their first weekly rise in two months, data showed on Thursday, enabling Prime Minister Vladimir Putin to say the cash will help the economy weather the global crisis.

The reserves, the world's third largest, have shrunk by a quarter from early August peaks, dented by the central bank's defence of the rouble in the face of mass capital flight.

Some of the money is also being used to fund a part of Moscow's $200 billion rescue plan for the economy and markets.

Falling oil prices are likely to limit any future reserve growth from tax revenues, and also mean that money may be needed to plug holes in next year's budget.

But Thursday brought a surprise. After weeks of falls the reserves rose $5 billion in the week to Nov. 28 to $454.9 billion.

Putin highlighted the rise as good news during his annual televised question and answer session with the public and said the cash will enable Russia to weather the crisis and avoid sharp rouble moves.

But analysts were sceptical that the trend has changed.

"I don't think we are done with the falls in reserves," said Tatiana Orlova, economist at ING.

"Pressure on the rouble will continue from the population, which will convert their savings into foreign currency in anticipation of a further depreciation of the rouble."

The central bank let the rouble depreciate in three one percent steps against a euro-dollar basket last month.

Two of the depreciations occurred last week, during which dealers estimated the central bank sold around $6 billion from reserves to support the currency at new levels.

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Thursday's data, though, suggested spending was outweighed by gains for government bonds held as part of reserves, whose value is calculated at market prices, and by gains in euro/dollar and sterling/dollar exchange rates.

Russia holds its reserves in 45 percent dollars, 44 percent euros, 10 percent sterling and around 1 percent yen, but calculates their cash pile's value in dollars.

Most of the reserves are held in sovereign and quasi-sovereign bonds, whose prices have risen as investors search for relatively safe investments. The price of another investment asset, gold, also rose in the latest week.

Citibank noted that Russia's oil wealth funds, which form part of the reserves, rose $8.8 billion in November to stand at $206.2 on Dec. 1 according to earlier data.

Another possible boost for the overall reserves figure could have come from the transfer of deposits of central bank money at commercial banks into roubles from foreign currency.

Alexei Ulyukayev, the central bank's first deputy chairman told Russia's Prime-Tass news agency in an interview last week that such a transfer made up around $4 billion.

"The reserves are unlikely to extend gains in the nearest future, as the factors which drove it turned rather short lived," UniCredit said in a research note.

A Reuters poll last week showed the reserves falling to $420 billion this month and $345 billion by end-2009.

-- For a table of reserves data see. (Reporting by Toni Vorobyova; Editing by Ruth Pitchford)

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