01 March 2004 01:55
Russia to cushion rouble from dollar FOREIGN EXCHANGE:
The Russian central bank is poised to cushion any bursts of upward pressure
on the rouble, while closely watching the dollar's fall against the
euro, a senior central bank official said.
The bank fears a sharply rising rouble would attract hot money into the
country.
In stark contrast to the period around the country's financial crisis in
1998, Russian markets are now awash with money from oil exports and
increasing interest from foreign portfolio investors. This has driven risk
appetite to unprecedented heights in the country's under-developed
capital markets, threatening to destabilise them, should oil prices fall and
the cash inflows dry up.
Oleg Vyugin, first deputy chairman at the Bank, told the Financial Times on
Friday that the CBR had the tools to prevent overheating. "If there is a
big flood of portfolio investment into the Russian market, the central bank
is ready to use its reserves to sterilise this," Mr Vyugin said.
Moody's upgrade of Russia's debt rating to investment grade last
year added to the capital flows bound for Moscow because it allowed a bigger
number of institutional investors to hold Russian securities.
Russian equities gained 58 per cent last year in dollar terms and have risen
by a further 18 per cent since January 1. Yields on domestic corporate bonds
are near record lows, although issuance doubled last year.
Mr Vyugin said the central bank bought a record Dollars 6.5bn of the US
currency during January and Dollars 3.5bn early last month in Moscow's
foreign exchange market to stem the rise in the rouble.
The central bank has plenty of ammunition, with foreign exchange reserves
near record highs at Dollars 86.7bn, up nearly Dollars 10bn since the
beginning of the year. In addition, the bank plans to start issuing its own
domestic bonds, aimed at sterilising some of the excess cash driving up asset
prices.
Moscow's interventions may pale into insignificance compared with
similar operations by Asian central banks, but in Russia few have failed to
note that the tables have turned between the world's number one currency
and the once-spurned rouble.
Mr Vyugin said people had begun to exchange some of the estimated Dollars
300bn in hard currency stashed away for roubles. In January alone, Dollars
1bn in US cash was returned to the US from Sberbank, the dominant retail
bank.
Mr Vyugin declined to name the central bank's target rate for the
rouble, but said the CBR was closely monitoring developments on the dollar.
Most of Russia's export revenues are in dollars, while half its imports
come from the eurozone.
"If we just followed the dollar rate, we could end up with a jump in
inflation," he said. "At the moment, the dollar/euro exchange rate
suits us, but if it moves substantially, we may review our forex
policy."
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