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UPDATE 1-Russia rouble rally powers ahead, more to come

Published 03/10/2010, 07:07 AM
Updated 03/10/2010, 07:12 AM
EUR/RUB
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* Scope for more rouble gains seen

* Cbank shifts boundary for 11th time in 3 weeks

* Market eyes more action from the regulator

(Adds details, background, analyst comments)

MOSCOW, March 10 (Reuters) - The Russian rouble hit 14-month highs versus a euro-dollar basket on Wednesday, its rally only slightly tempered by central bank interventions, and analysts said tax payments next week would just add momentum.

Speculation is rising that continued rouble gains while Russia limps out of recession could prompt a bigger response from the central bank, like more interventions, larger interest rate cuts or a rise in banks' reserve requirements.

The central bank has so far stuck by its policy of shifting the rouble's floating trading band by 5 kopecks for each $700 million of interventions in a bid to slow down excessive currency moves without stifling market trends altogether.

On Wednesday, the rouble firmed as far as 34.4531 against the basket , with dealers saying the central bank had likely shifted the floating trading band to 34.45-37.45 from 34.50-37.50 -- its 11th such move in three weeks.

In addition, the central bank has been buying smaller amounts in so-called 'planned' interventions within the band's boundary, estimated by dealers at around $200-300 million a day.

The rouble firmed to 7-week highs of 29.65 per dollar and hit 40.31 per euro, its strongest since December 2008 .

"We expect the rouble to...rally towards 34.25 this week, provided that oil prices remain strong," Gintaras Shlizhyus, analyst at Raiffeisen, said in a research note.

"Euro zone troubles are still casting a shadow over the euro market, which should lend additional support to rouble bulls."

Oil prices are up 10 percent in the past month , while Russia -- with interest rates of 8.50 percent -- still offers attractive yields to increasingly risk-hungry investors.

VTB Capital and ING said if appreciation pressure on the rouble persists, the central bank could slash rates by 50 basis points this month, after a 25 basis point easing in February.

Such appreciation pressure could only intensify later this month, as end-month and end-quarter tax payments in Russia start from next week. This prompts exporters to change their foreign currency earnings into roubles, and other market players may also be encouraged to ditch dollars and euros in anticipation. (Reporting by Andrei Ostroukh; Writing by Toni Vorobyova; editing by Patrick Graham)

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