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UPDATE 2-Russia cbank makes biggest rouble devaluation to date

Published 12/17/2008, 06:52 AM
Updated 12/17/2008, 06:55 AM

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By Gleb Bryanski and Andrei Ostroukh

MOSCOW, Dec 17 (Reuters) - Russia made its biggest rouble devaluation to date against a euro-dollar basket on Wednesday, allowing the currency to weaken for the second time in three days and using a window of opportunity opened by a weak dollar.

The rouble weakened by 1052 GMT on Wednesday to 32.63 versus the basket from 32.20, seen as a previous support level, and a central bank official confirmed the currency's trading band had been widened for the seventh time in under two months.

Traders said the central bank was absent from the market when the rouble weakened by more than 40 kopecks suggesting the devaluation exceeded in size all the previous moves.

The regulator had previously devalued the rouble in one percent or 30 kopecks moves. Traders have said so far on Wednesday there was no intense trading around any perceived support level.

"It is obvious the central bank was not seen on the market at 32.50," said trader Sergei Romanchuk from Metalloinvestbank.

"We are in the dark, it would be great to hear some explanations from the central bank," said Viktor Kholoshnoi, chief trader from Gazprombank.

The central bank runs a managed float of the rouble keeping it stable against the basket, made of 0.55 dollars and 0.45 euros, but is gradually widening the band where the exchange rate fluctuates.

A weaker dollar makes the devaluation moves less sensitive for the population, which in recent weeks sought to switch their savings into foreign currency. The dollar remains the saving currency of choice for many Russians.

The central bank has reduced its public communication to a minimum since the start of the gradual devaluation, with its public face First Deputy Chairman Alexei Ulyukayev mostly making appearances in talk shows on Echo Moskvy radio station.

NO CATCH UP

The dollar dipped towards 13-year lows against the yen and hit its lowest versus the euro since Sept. 30 on Wednesday after the U.S. Federal Reserve slashed rates to as low as zero.

"Although the central bank now devalues the rouble twice a week, it still cannot catch up with the dollar's fall," said Evgeny Nadorshin, analyst from Trust Bank in Moscow.

The rouble is down 19 percent against the dollar since its July peak but has been regaining ground since Dec. 5 despite the central bank's devaluation moves. The euro reached a historical maximum of 38.65 to the rouble.

Russia's MICEX stock index rose 0.69 percent after the Fed's rate cut with markets expecting further support from an OPEC decision to cut oil production by a record 2 million barrels per day to rescue oil prices.

The acceleration in the rouble devaluation also follows the state's clampdown on domestic banks and companies which sought to convert their cash to foreign currency, contributing to the pressure on the rouble.

The central bank warned the banks it may cut them off the liquidity lifeline if they increase their foreign currency positions. Earlier this week it reduced access to collateral-free liquidity auctions for 34 commercial banks.

In a separate move, commercial banks were authorised to open interest-free foreign currency accounts with the central bank. The money deposited in such way will be counted as part of Russia's forex reserves and will support the rouble.

Russia has seen its gold and forex reserves, the world's third largest, shrink by a quarter since early August to under $440 billion as the central bank has battled to defend the rouble. It has spent another $5 billion so far this week, according to dealers' estimates. (Additional reporting by Yelena Fabrichnaya; Editing by Victoria Main)

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