Russia c.bank sees rouble stable by year-end

A person holds Russian rouble notes in St. Petersburg December 18, 2008.

MOSCOW (Reuters) - Russia's rouble should remain broadly stable through to the end of the year and continue its journey toward a free float, the central bank's first deputy chairman Alexei Ulyukayev told Reuters on Friday.

"Small fluctuations from the current rate are possible by the end of the year, which could be measured in 10s of kopecks in one or other direction," Ulyukayev said in an interview at the Reuters Russia Investment Summit.

"I do not see reasons for big fluctuations."

Asked about the central bank's plans for allowing the rouble free float, Ulyukayev said it had already "virtually" happened.

"We intervene in the domestic currency market with a sole aim of eliminating excessive volatility in either direction ... We have no target for the exchange rate," he said, adding that since the start of the month, Russia has spent a few hundred million dollars on foreign exchange market interventions.

The rouble on Friday hit a six-week high of 36.98 against the euro-dollar basket the central bank uses to fix the currency's daily exchange rate.

The central bank has pledged to keep the rouble in a band of 26-41 against the euro-dollar basket, but Ulyukayev said the corridor could be scrapped in the future.

Ulyukayev also said that this year's net capital outflow should be around $40 billion, adding that in 2010 "there will be an insignificant outflow, smaller than this year."

He said that Russian banks have a little over $10 billion on foreign currency accounts with the central bank.

RESERVE REQUIREMENTS

Separately, Ulyukayev said that if a need arises the regulator might raise reserve requirements on foreign borrowings as well as foreign currency deposits.

Before the crisis, the central bank required banks to have higher reserves for foreign currency operations than rouble ones. But requirements were equalized for all types of deposits and liabilities when the liquidity crunch struck last autumn.

Since May, the central bank has gradually raised the reserve requirements. The monthly increases ended in August with the reserve ratio at 2.5 percent of all deposits.

Some have argued differentiation should be re-introduced to make foreign currency less attractive and help the rouble.

"There was a differentiation before," Ulyukayev said. "We can make it even greater."

"We can do it (differentiate requirements) if we see that the situation requires that," Ulyukayev said. "Today, we do not see such a need."

He said that market participants are free to invest in foreign currencies.

"That is their problem," Ulyukayev said. "I believe that they will make a big mistake and take on unjustifiably large risks."

(Writing by Lidia Kelly; Editing by Ruth Pitchford)