Russian c.bank shows markets who's the boss

By Gleb Bryanski - Analysis

MOSCOW (Reuters) - The Russian central bank, which runs over $0.5 trillion in gold and forex reserves, has left currency traders out in the cold as it tries to stop speculators from betting on the rouble's revaluation.

The central bank runs a managed float of the rouble keeping it stable against a dollar/euro currency basket. As Russia sells its oil at record high prices the appreciation pressure on the rouble is growing.

On Wednesday, the central bank said it was changing its intervention technique as part of a transition to an inflation targeting regime, which requires a more flexible exchange rate.

Previously the central bank intervened to when the exchange rate against the basket, made of 0.55 dollars and 0.45 euros, got close to what the market saw as the central bank's top and bottom of its target band of 29.61 and 29.90 roubles.

Large currency purchases turned the central bank into "an bull in a china shop", as one of its officials has said, because it made easy for international speculators to take positions in the currency market.

Dealers told Reuters they could now no longer see the central bank's intervention because smaller volumes of purchased currency and varying bid levels made it no different from other banks trading in the market.

"It has become difficult to make any forecasts now, the banks are wandering like a flock of sheep", said currency dealer Viktor Kholoshnoi from Gazprombank.

IT HURTS