UPDATE 1-Russian officials play down rouble slide to 4-yr lows

Thu Nov 28, 2013 5:22am EST

MOSCOW Nov 28 (Reuters) - Senior Russian policy makers played down the weakness of the rouble on Thursday, arguing that its weakness was natural and the result of external factors rather than the result of any deeper economic malaise.

The currency steadied in morning trade after hitting a four-year low to the dollar a day earlier, underperforming other emerging market currencies that have been hurt by anticipation of a reduction in monetary stimulus by the U.S. Federal Reserve.

The agreement by OPEC member Iran with world powers to put its nuclear programme on hold has increased downside risks to the price of oil, Russia's main export. Energy taxes account for half of federal budget revenues.

In contrast to previous rouble slides, however, this time the falls may be as much about a broadly darker economic outlook that reflects declining confidence among investors in a country that has failed to modernise in many areas.

At current prices, oil revenues still keep Russia's current account in positive territory so it is also difficult to blame oil prices for the drop generally.

"According to the central bank's estimates (the weakening) is the result of external factors," Ksenia Yudaeva, first deputy governor of the central bank, told journalists.

"In the last three days I don't see any serious, exotic things happening," she added.

The central bank has set a goal of shifting to an unfettered rouble free float in 2015, but still conducts automatic interventions to curb volatility. It has lowered its 7-rouble target band for the rouble against a basket of dollars and euros in six small steps this month.

During the 2008-financial crisis, the central bank spent $200 billion - or a third of its reserves - in an ultimately futile defence of the rouble that averted financial collapse but deepened the ensuing economic slump.

Officials now show little sign of wanting to repeat that mistake. According to their thinking, a weaker rouble would help restore Russia's export competitiveness and offer some support to a slowing economy.

At 0945 GMT the Russian currency was up 0.1 percent against the dollar at 33.15, but down 0.2 against the euro at 45.10, leaving it two kopecks weaker at 38.53 against the dollar-euro currency basket.

SEASONAL IMPACT

Analysts have also attributed the rouble's weakness in recent days to large foreign debt repayments that fall due in December, as well as seasonally high imports ahead of New Year holidays.

However, some have also speculated that a tightening of banking regulation in Russia, signalled last week by the closure of mid-sized Master Bank, has encouraged more capital outflows.

Economy Minister Alexei Ulyukaev also played down the rouble's weakness on Thursday. "This is entirely natural," he said.

He said that the weaker rouble was connected with a downward revision of the country's current account surplus, and consistent with the central bank's policy shift towards targeting inflation rather than the exchange rate.

A further weakening of the rouble was possible after the end of the monthly tax period. "There is such a possibility, a small one, but it exists," he said.

Russian exporters pay major taxes at the end of each month, requiring conversion of foreign currency into roubles. Such liquidity flows are closely watched by traders as they can move the exchange rate.

Finance minister Anton Siluanov also weighed in on the issue. "It's impossible to call this a fluctuation. I would call it ... a ripple," he said.

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