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UPDATE 2-Russia c.bank allows rouble to scale fresh highs

Published 09/30/2009, 09:51 AM
Updated 09/30/2009, 09:54 AM
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* Rouble posts record monthly gain vs basket

* C.bank says bought over $600 million on Wednesday

* Dealers say interventions were around 36.25 roubles/basket

(Updates with Ignatyev, closing prices, quotes)

By Yelena Fabrichnaya and Toni Vorobyova

MOSCOW, Sept 30 (Reuters) - The Russian rouble posted a record monthly gain versus a dual currency basket on Wednesday, with the central bank moving its intervention level to allow a creeping appreciation while avoiding high volatility.

The central bank bought a little over $600 million on Wednesday as part of its policy to limit excessive exchange rate swings in either direction, chairman Sergei Ignatyev said.

The rouble closed at 36.29 versus the basket on Wednesday, taking its gains for September to 5.3 percent for its best performance since the current basket composition of 0.55 dollars and 0.45 euros was set in 2007.

During the session, it set a nine-month high of 36.23. Dealers said the central bank intervened around the 36.25 mark on Wednesday, having gradually moved the level from the 36.40 at which the regulator entered the market at the end of last week.

Ignatyev said the regulator had stuck by its policy to allow the rouble's floating corridor to move by 5 kopecks after each $700 million of interventions, as it had done in the summer.

"We have not changed it. It remains $700 million. But we do not make any promises to make an announcement when we do change it," he told reporters.

The floating corridor is 3 roubles in width and is located within a set 26-41 rouble trading band, which Ignatyev said the central bank has no plans to scrap for now, even though it remains committed to move to a free float in the next few years.

The rouble has now clawed back around 40 percent of the depreciation experienced in late 2008-early 2009 as the country slipped into recession, hurt by a slump in oil prices.

"ELEPHANTS" GET IN ON THE GAME

The central bank's first deputy chairman, Alexei Ulyukayev, said on Tuesday he was worried about volatility rather than the current rate, and dealers said such comments gave the market confidence to push the rouble stronger.

"Yesterday, (investors) tried to strengthen the rouble, move the central bank's bid, and it worked. Having seen that it is possible and having evaluated the risks, the 'elephants' have started to come in -- the big guys like hedge funds, asset managers," said Alexei Borichev, a dealer at ING.

"The carry trade looks very attractive ... especially as the risk of dollar strengthening is very low."

Russia this week cut rates for the seventh time in five months. But at 10.00 percent, the benchmark refinancing rate still offers favourable returns compared with rates of 1.00 percent or less in the other G8 countries.

The rouble market has also taken the recent fall in oil price in its stride -- at $65 a barrel, Urals oil still remains some $8 above the level factored into this year's Russian budget, even if it is off peaks near $75 seen in August.

Another positive for the rouble is a resurgence in capital inflows in the third quarter, as the domestic economy shows early signs of recovering from its first recession in a decade.

The rouble closed at 30.06 per dollar, its best monthly performance since May, with gains of over 6 percent.

One-year non-deliverable forwards show the market is more upbeat on prospects for the rouble against the dollar than at any time since last autumn. But at 32.70 roubles per dollar, the NDFs nonetheless point to the Russian currency weakening -- if only slightly -- on the 12-month horizon.

Goldman Sachs suggests taking profits on rouble longs.

"Further appreciation seems possible, given the global cyclical environment and carry. But given the decent move in recent weeks and the ongoing central bank dovishness, we think the downside risks to the rouble have increased in the near term," its analysts said in a note. (Additional reporting by Andrei Ostroukh and Oksana Kobzeva; editing by Stephen Nisbet)

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