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UPDATE 1-Russian rouble notches up best week ever vs basket

Published 02/13/2009, 11:04 AM
Updated 02/13/2009, 11:08 AM

(Updates with closing prices, interventions, adds quotes)

By Andrei Ostroukh and Toni Vorobyova

MOSCOW, Feb 13 (Reuters) - The Russian rouble notched up a record weekly gain of 4.5 percent versus a euro-dollar basket on Friday, as central bank strategies appeared to succeed in halting months of devaluation.

Dealers said the speed of the rouble's appreciation prompted the central bank to enter the market for the first time this month, selling roubles as part of its policy of avoiding excessive exchange rate moves in either direction. The rouble's rally follows months of controlled devaluation as Russia sought to gradually adjust the currency to weak oil prices and the worst economic outlook in a decade.

Analysts expect month-end tax payments to support the rouble in the near-term, but ordinary Russians remain cautious about the prospects for the currency which lost over two-thirds of its value during the last major financial crisis a decade ago.

After letting the rouble lose over a quarter of its value versus the basket over the past few months, the central bank sought to put a floor under the devaluation at 41 roubles per basket with rate hikes, caps on rouble liquidity injections and stern warnings for banks against currency speculation.

The rouble closed at 39.09 per basket on Friday, broadly flat on the day but up 4.5 percent, or 1.8 roubles for the week -- its biggest weekly gain since the current basket composition of 0.45 euros and 0.55 dollars was set two years ago.

During the session it strengthened as far as 38.92.

Dealers said the central bank sold roubles and bought foreign currency at levels equivalent to 39 per basket.

"In this environment they don't need the rouble strengthening at all. If anything they need a weaker rouble to help the (economic) recovery," said Elina Ribakova, analyst at Citibank.

"I think there is a level that they will try to avoid going beyond...That's what everyone is guessing at the moment."

Russia spent around a third of its reserves, or some $200 billion, keeping the rouble's depreciation gradual over the last six months to avoid a 1998-style currency collapse.

Before the rouble's depreciation began in August, the central bank had been allowing the currency to gradually appreciate in steps of around 10 kopecks at a time.

Russians' demand for foreign currency hit a record $18.9 billion in December, while rouble deposits fell for the fourth month a row, by 2.1 percent, central bank data showed this week.

In the longer-term analysts reckon the rouble's chances of staying within the trading band hinge on the price for oil but also on Russia's willingness to keep its budget deficit under control.

(Editing by Ruth Pitchford)

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