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UPDATE 1-Russia cbank head eyes move toward rouble free float

Published 12/08/2010, 10:59 AM
Updated 12/08/2010, 11:04 AM
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* Says could stop regular interventions within 2 years

* Oil prices, c/a surplus to support rouble

* Worried about inflation, but 2011 target "achievable"

* Does not rule out rate hikes in Q1

(Recasts, adds quotes, details, background)

By Toni Vorobyova and Yelena Fabrichnaya

MOSCOW, Dec 8 (Reuters) - Russia could be ready to stop regular interventions to prop up the rouble in the next two years as it moves ever closer to allowing the currency to float freely, central bank governor Sergei Ignatyev said on Wednesday.

In a rare press briefing, Ignatyev also forecast the time of chronic rouble weakness could be over, said he was concerned about inflation and did not rule out near-term rate hikes.

His comments boosted the rouble in late trade, pushing it towards Tuesday's one-week high versus the euro-dollar basket used by the central bank to track the exchange rate.

"Anything is possible," he said, when asked about the possibility of interest rate hikes starting late this year or in the first quarter of 2011.

Analysts see the refi rate hiked from 7.75 percent in the first quarter of 2011 -- expectations which were fuelled by the central bank dropping its wording in November on policy likely staying unchanged in comings months.

Rates at record lows, rising inflation, foreign debt repayments by corporates, acquisitions abroad, rising imports and global risk aversion all combined this autumn and prompted the rouble to shed all its 2010 gains in just a few weeks.

"Some people expect a further weakness of the rouble -- I think they may be disappointed," Ignatyev said.

"At the moment oil prices are very high... and against the backdrop of current account surplus it is very difficult to expect a further rouble weakness."

Russia remains committed to increasing exchange rate flexibility, further widening the rouble's floating corridor.

"My opinion is that in the next 2-3 years, the central bank cannot take on this obligation that it will not carry out interventions," Ignatyev said.

"But what I call an "almost free-float" -- we could arrive at that regime in the next two years -- where we go along the path of widening the corridor, and the rouble wobbles in its central part without any interventions."

UPBEAT ON GROWTH, WORRIED ON INFLATION

Ignatyev estimated November's capital outflows at $9 billion -- meaning some $29 billion has now left Russia since the start of the year -- but said an inflow was possible in December.

Russia's $32 billion privatisation plan could lead to more inflows in 2011-3, he said.

Echoing the central bank's recent tone, Ignatyev sounded upbeat on the economy, saying he sees no serious macroeconomic risks for Russia in 2011 and hopes for gross domestic product (GDP) growth of 5 percent -- higher than the official forecast.

Next year's target to cut inflation to 6-7 percent "is quite achievable", he said but sounded less sanguine on the near-term.

"Inflation is starting to worry us," he said, forecasting it could reach 8.4 percent this year -- the lowest in post Soviet history but far higher than had been expected before a severe summer drought wiped out a third of the harvest, pushing up food prices.

The rouble's weakness this autumn may also have played a part in fuelling price pressures, Ignatyev conceded.

RESERVES

Russia has recently started buying the Canadian dollar for its near-$500 billion gold and forex reserves, and Ignatyev said that currency's share of the portfolio could rise to 1-2 percent next year.

The central bank is also preparing to invest in the Australian dollar and, not least because of the addition of the new currencies, Ignatyev said the structure of reserves could change a little next year.

"I do not rule it out. But it is unlikely that something will change significantly," he said.

Prior to the addition of the loonie, the FX part of the reserves was held in 47 percent dollars, 41 percent euros, 10 percent sterling and 2 percent yen.

(Editing by John Stonestreet)

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