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Russia to cut rates further to stop risky capital flows
'Rouble is too strong'
November 26, 2009
By Alex Nicholson and Paul Abelsky Moscow
Russia's central bank would keep cutting interest rates as policymakers tried to prevent speculative capital from flowing in and destabilising the currency, Bank Rossii first deputy chairman Alexei Ulyukayev said yesterday.
Russia needed to keep cutting rates to stem the use of the rouble as a vehicle for the carry trade, and after the economic decline removed inflation risks, Ulyukayev said at a conference organised by the Vedomosti newspaper in Moscow.
The bank on Tuesday cut its key refinancing rate to a record low 9 percent in the ninth reduction since it started easing in April as it tries to curb speculative gains in the rouble and ease credit flows.
Demand for rouble assets had left Russian stocks overvalued, leading to a threat of overheating, Minister of Finance Alexei Kudrin said.
The unit was little changed to trade at 28.8013 roubles to the dollar in Moscow afternoon trading. Against the euro, it slipped 0.4 percent to 43.2988.
Ulyukayev said the bank would be "more active" in using currency transactions to steer the rouble within a "floating" corridor of 35 to 38 against a target basket of dollars and euros.
The crisis had shown that the economy of the world's biggest energy exporter was "extremely vulnerable" to external events, Ulyukayev said.
Russian equity funds drew record amounts at the end of last month, said EPFR Global.
The rouble is the second-best performer among emerging market currencies after the Chilean peso in the past three months, gaining 8.7 percent in the period, Bloomberg data show.
The rouble gained even after Russia bought foreign currency, raising reserves to $441.7 billion (R3.3 trillion) at the end of last week, compared with a low of $376.1bn on March 13, central bank data show.
The government was not planning to restrict capital and would target "soft measures" to help stem the rouble's appreciation, Kudrin said yesterday.
The Micex stock index of Russia's 30 most liquid stocks has gained 116 percent this year, making it the world's best- performing benchmark equity gauge in the period, measured in local currencies. The index slipped 0.4 percent to 1 324.81 in afternoon trading yesterday.
Interest in Russian assets has picked up following this year's 80 percent rise in the price of Urals crude. Energy products make up about 70 percent of Russia's export revenue.
The central bank would also continue to cut interest rates as it saw "no inflationary risks" next year with a rate "much lower" than 9 percent forecast, Ulyukayev said.
Inflation slowed to an annual 9.7 percent last month, the lowest rate in two years.
"In terms of nominal interest rates Russia is still offering the highest yields in the emerging market space and in an environment where oil prices are remaining relatively well supported we think that the rouble will continue to be seen as an attractive way to position for global recovery," said Manik Narain, an emerging markets strategist at Standard Chartered Bank in London. - Bloomberg
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