Russia political risk drives rouble to 2011 low

MOSCOW: The Russian rouble extended losses at Friday's opening, bruised by capital outflows linked to political uncertainty despite steady oil prices and liquidity strains.

By 0810 GMT, the rouble weakened 0.4 percent to 30.53 versus the dollar after briefly touching its lowest since the beginning of 2011 at 30.61. Shares were down after rising overnight.

"The rouble's weakening is linked to internal reasons, which is the capital outflow before elections. Every day it becomes less clear who will run for president, it creates political risks," said the chief dealer at a major Western bank in Moscow.

Some six months before the presidential vote neither President Dmitry Medvedev nor Prime Minister Vladimir Putin have declared the will to run for the post.

In a sign of machinations ahead of the polls, billionaire Mikhail Prokhorov said he would boycott December's parliamentary election and accused the Kremlin's chief political strategist of sabotaging his political career.

The rouble's weakness, despite oil prices above $113 per barrel, can also be attributed to rising imports and obligations to redeem foreign debts, dealers say.

Versus the euro, the rouble eased 0.3 percent to 42.23 and gave up 0.4 percent to 35.82 against the euro-dollar basket, the central bank's main gauge of the currency market.

A further massive slide in the rouble is unlikely as the central bank is expected to step up interventions, selling more foreign currencies if the rouble moves towards the upper boundary of the trading band, now at 32.15-37.15 roubles per basket.

"We think the central bank will limit too-sharp moves in the rouble on the eve of the elections," analysts at Citi said in a note, adding that the rouble could depreciate towards 37 versus the basket in 2012 as the current account surplus falls.

The central bank's first deputy chairman Alexei Ulyukayev said on Friday the rouble was not overvalued or undervalued, contradicting the Economy Ministry's view that it is unjustifiably strong.

The Russian stock market was in negative territory after gaining overnight, with the dollar-based RTS index down 1.5 percent and the MICEX rouble-based index losing 0.4 percent on the day.

Copyright Reuters, 2011