UPDATE 1-Russia's foreign currency purchase plans drive down rouble

Tue Feb 18, 2014 7:03am EST

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By Oksana Kobzeva and Lidia Kelly

MOSCOW Feb 18 (Reuters) - The rouble fell to all-time low against the euro and declined versus the dollar on Tuesday on expectations of foreign currency purchases by the Russian finance ministry.

The ministry is soon to announce details of nearly $6 billion worth of purchases to replenish one of the country's sovereign wealth funds.

"The details will be published in the coming days," Deputy Finance Minister Alexei Moiseev told Reuters.

The rouble was trading at a record low of 48.54 versus the euro at 1040 GMT, down 0.6 percent on the day ; and was down 0.4 percent at 35.34 against the dollar .

The Russian currency was down 0.5 percent at 41.30 against the dollar-euro basket after touching its weakest-ever level of 41.31. The basket is used by the central bank to guide the rouble's nominal exchange rate.

Russia's budget deficit came in last year at 0.5 percent of gross domestic product, better than expected and freeing up revenues to go into the Reserve Fund, one of the rainy day funds in which the government saves windfall energy revenues.

The ministry has not disclosed the mechanism for the foreign currency purchases. Last October, it said it would use a new method - the central bank converting the roubles from the energy revenues into foreign currency via the open market.

However the ministry said earlier this month that it may also use an old mechanism of handling the revenues - through off-market operations by the central bank, which may have little impact on the rouble.

The lack of clarity about the purchases has shaken the market.

"A major portion of the uncertainty invariably comes from the finance ministry and its plans to transfer (foreign currencies) into the Reserve Fund," Evgeny Koshelev, an analyst at Rosbank in Moscow, said in a note.

"Both local and foreign market participants are playing against the rouble."

Analysts at VTB Capital said in a note that the rouble has been underperforming most of its emerging market peers by 5-6 percent since the beginning of the year, with the expected foreign currency purchases one of the reasons behind the decline.

VTB remains optimistic about the fate of the Russian currency, however, saying that by now all the risks associated with the rouble - which also include fewer market interventions by the central bank and the possibility of no rate hikes - are priced in.

"Therefore, we do not believe that there is much downside in the rouble relative to other markets and the reversal will be rather sharp," the analysts wrote.

For rouble poll data see

For Russian equities guide see

For Russian treasury bonds see

Russia in graphics: link.reuters.com/dun63s ($1 = 35.2150 Russian roubles) (Additional reporting by Vladimir Abramov; Editing by Pravin Char)

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