(Updates with rate increase)
By Toni Vorobyova and Andrei Ostroukh
MOSCOW Nov 11 Russia's central bank spent an
estimated $7 billion on Tuesday on establishing a new limit for
the rouble after allowing the currency to weaken beyond a key
level it had defended in recent months.
In a separate move, the bank raised all of its official
rates by one point, with the exception of a two point rise in
the currency swap rate, to prevent flight from rouble positions
by companies and the population from rouble deposits.
After breaking through its former 30.41 limit against a
euro/dollar basket, the rouble weakened as far as 30.79,
according to Reuters data RUS=MCX, and analysts say the move
underlines the strain intervention has put on Russia's currency
reserves -- the world's third biggest.
Some analysts also highlighted the risk that rouble weakness
could spread worry among ordinary Russians who remember the
country's 1998 financial crisis.
Russian share prices also fell sharply on Tuesday and the
MICEX exchange suspended trading until Thursday.
The rouble closed at 30.70, and the central bank issued a
statement saying it had widened the rouble's trading band by 30
kopecks in each direction "to increase the flexibility of the
exchange rate". Previously the band was seen around 29.25-30.41.
Dealers estimated the central bank had sold $7 billion on
Tuesday to defend the new mark -- more than it had spent on
interventions in the whole of last week.
"It's not surprising (that interventions were so high) -- if
you start moving the band gradually, you just encourage
speculation against the currency," said David Hauner, emerging
market strategist at Bank of America in London.
"The move has now led to an entrenched belief that there
will be further moves in the near future."
Tuesday's levels were the rouble's weakest since the basket
was set at the current composition of 0.45 euros and 0.55
dollars in February 2007.
Central bank chief Sergei Ignatyev had flagged the move on
Monday, saying some rouble weakness was possible [ID:nLA481430].
Russia's interventions to prop up the rouble from widespread
capital flight have helped slice over $100 billion off its gold
and forex reserves since early August [ID:nL6346995], taking
them below half a trillion dollars.
With falling oil prices depleting the flow of new income to
the reserves, experts were increasingly saying compromise on the
rouble level was becoming inevitable.
"We have to make the choice: one or the other, and the
sooner we decide the better. Otherwise it may turn out as
before: no reserves and no strong rouble," Russian billionaire
Mikhail Prokhorov wrote in Vedomosti business daily on Tuesday.
Authorities were reluctant to devalue the rouble during the
1998 financial crisis, but in the end had little choice.
RISK TO STABILITY
Russia's bourses [.ME] fell around 10 percent on Tuesday,
while 5-year sovereign credit default swaps widened to around
600 basis points RUSSIA5UA=.
Volumes on dollar/rouble trades for tomorrow's settlement
surged to $8.7 billion RUBUTSTN=MCX.
Most analysts had not expected a devaluation so soon -- a
Reuters poll at the end of last month had shown the rouble
ending this year at 30.40 to the basket, but weakening to 32.20
by the end of 2009 [ID:nMOS005331].
"They are doing the right thing (in allowing the rouble to
weaken) because the underlying economics remain -- we sell
commodities... international commodity prices have adjusted and
we have to adjust," said Elina Ribakova, chief economist for
Russia at Citibank.
"They will do it similarly to the way they were doing the
appreciation -- they will take it very gradually. I think it has
to go another 15 percent but they could possibly do it during
the whole of next year," she added.
While oil prices have fallen around 60 percent from summer
peaks URL-E, the rouble -- even after Tuesday's devaluation --
has weakened by only around 5 percent over the period, putting
pressure on Russia's resource-dependent economy.
There were no headlines about the rouble depreciation on the
Web site of Russia's main television channel, the
state-controlled First Channel, www.1tv.ru.
"We see a danger...that the central bank's latest move could
be seen as premature capitulation by investors, triggering fresh
capital flight and necessitating yet more step devaluations in
the coming weeks, which could forge a sizeable and resilient
vicious circle," Dresdner Kleinwort said in a note.
The Vedomosti newspaper reported that clients withdrew a
monthly record of 80 billion roubles ($2.93 billion) in October
from accounts at Sberbank SBER03.MM, Russia's biggest lender
"After today's central bank decision we expect further runs
on deposits," Alfa Bank said in a research note, cutting its
2009 Russian economic growth forecast to 2 percent from 6.
But Citi's Ribakova said most ordinary Russians do not look
at the basket, and have already weathered an 18 percent rally in
the more closely watched dollar/rouble rate in three months.
For a FACTBOX on rouble moves see [ID:nLB222365]
(Additional reporting by Gleb Bryanski; Writing by Toni
Vorobyova; Editing by Ruth Pitchford)