Russia's gold and foreign exchange reserves have surged to a new record, figures showed on Thursday, increasing upward pressure on the rouble after it scaled six-month highs this week.
The bumper gain reflected massive dollar-buying intervention as the central bank tried to fight off market pressure for the rouble to rise as record oil export revenues flood into Russia.
Reserves rose $5.1 billion to $105.2 billion in the week to last Friday, central bank data showed. That was the largest weekly gain since just before Russia's 1998 financial crash, and brings the total increase in reserves this year to 35 percent.
It was also last Friday that the central bank withdrew its dollar bid. The rouble has since probed 1.2 percent higher against the US currency.
"The inflow of dollars supports the idea of a stronger rouble. It does make the central bank's life more difficult," said David Lubin, an economist at HSBC in London.
"The stronger Russia's balance sheet gets, the more inevitable it seems to investors that the rouble's got to strengthen."
The central bank runs a "dirty" float of the rouble, and the exchange rate largely depends on where it decides to put a floor under the dollar.
Roubles for tomorrow delivery did not react in official trade to the reserves numbers. The central bank was last seen supporting the dollar at 28.76 roubles.
"The central bank isn't just buying up export dollars. It is banks and companies shifting their assets to roubles because all of a sudden the rouble is more interesting," said Peter Westin, chief economist at Aton brokerage in Moscow.
Russia now enjoyed large enough reserves to cover more than a year's imports, he said. Four months is considered prudent.
The massive inflows have thrust the central bank into a policy dilemma: Can it continue to keep buying dollars to defend competitiveness, risking higher inflation? Or should it let the rouble rise and take a short-term hit to growth?
Russia's economy hit a soft patch in September, leading the government to revise down its forecast for industrial growth this year, and policy makers will be reluctant to take any steps which might delay a rebound.
"It's likely a decision like this will only be made at the highest level," Lubin said.
Russia is on course to overshoot its 10 percent inflation target this year, with economists saying central bank intervention is pumping roubles into a weak banking system which cannot channel the cash into investment.
Russia is also targeting real effective rouble appreciation of no more than 7 percent this year in support of President Vladimir Putin's strategy of preserving competitiveness and doubling the size of the economy in a decade.
Koon Chow, a currency strategist at CSFB in London, said the reserves growth in part reflected positioning by the market for further rouble gains.
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