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UPDATE 2-Russia c.bank buys dollars as rouble strengthens

Published 03/19/2009, 11:22 AM
Updated 03/19/2009, 11:40 AM

(Adds quotes, details, background)

By Andrei Ostroukh and Antonina Vorobyova

MOSCOW, March 19 (Reuters) - Russia's central bank had to intervene to buy dollars on Thursday for the first time since mid-February, dealers said, as the Russian rouble strengthened beyond 39 versus a euro-dollar basket.

The central bank bought dollars at around 38.90 roubles against the basket, just above the level a central bank official highlighted as a likely boundary for near-term currency fluctuations a month ago.

Russia spent around a third of its reserves, or some $200 billion, over several months from last August on buying roubles to offset intense depreciation pressure on its currency from tumbling oil prices, the world financial crisis and the worst domestic outlook in a decade.

However, this month the currency has steadied and begun to appreciate again. The central bank was last seen intervening to prevent the rouble from strengthening on Feb. 13.

In January, the central bank set the rouble's trading band as 26 to 41 per basket, but said it could intervene within these parameters to avoid excessive exchange rate volatility.

The central bank's first deputy chairman, Alexei Ulyukayev, told Reuters a month ago that in the near future the exchange rate would likely fluctuate in the 39-41 range.

The dealers, who declined to be named, said they saw the central bank's new bid level at 38.83. The rouble benefited from a rally in oil prices to five-week highs and from broad-based dollar weakness after the U.S. Federal Reserve stunned investors on Wednesday by saying it would buy long-term debt in an effective printing of money.

"It's oil and the external backdrop. Everything is against the dollar," said a dealer at a European bank in Moscow.

The rouble gained over 1 percent to 38.83 against the basket.

In an interview with RIA news agency published on Thursday, Ulyukayev said the central bank was happy with the rouble around 39-40 for now, but that the regulator had made no commitments about defending the 39 level.

Russia signalled the end of the devaluation process two months ago, when the central bank unveiled the new band boundaries.

Ulyukayev said the central bank had not intervened in the currency market for a month and a half.

"The results of the first quarter may push them (market participants) to the idea that the scope for strengthening is greater than the scope of weakening," he was quoted as saying.

"It is quite likely that in the second half both the current account and the capital account will be noticeably more positive than we had expected up until now," he added, noting that such developments could support the rouble.

He also did not exclude that the central bank could begin to cut interest rates in the second quarter to support the economy. Previously Russia had hiked rates to prop up the rouble.

Data on Thursday showed that Russia's gold and forex reserves, still the world's third largest, fell $4.4 billion in the latest week to $376.1 billion.

Analysts say the falls in reserves in the past couple of weeks, in the absence of dollar-selling interventions from the central bank, were probably partly caused by commercial banks reducing the amount of foreign currency they hold on correspondent accounts at the central bank.

Ulyukayev said the amount on held in such accounts was a little under $40 billion. (Additional reporting by Yelena Fabrichnaya; Editing by Ruth Pitchford)

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