Russia Ends De-Facto Dollar Peg and Moves to Align Rouble with Euro
By Steve Johnson
Financial Times
Saturday, February 5, 2005
news.ft.com
LONDON -- Russia said yesterday it had abandoned efforts
to tie the rouble's movement closely to the dollar and
switched to shadowing both the euro and the US currency.
The move heightened expectations that other countries
operating de-facto dollar pegs, such as China, could
follow suit.
With 81 percent of Russia's oil exports currently sold to
Europe, the move also provoked fresh speculation that
Russia could decide to denominate its oil in euros.
Russia is the world's second-largest oil exporter, behind
Saudi Arabia.
"Russia has talked about the idea of pricing its oil in
euros. If it is starting to put more weight on the euro
in terms of its forex regime and reserves, then that
speculation will be re-ignited," said Ian Stannard,
currency strategist at BNP Paribas.
Russia had announced its intention to introduce a basket
arrangement last April but did not set a firm date for the
change. The Bank of Russia, the central bank, has been
building its euro reserves in readiness, with some 30
percent of its reserves now estimated to be in euros,
against just 5 percent in 2000. Traders said it appeared
Russia had begun to loosen its peg to the dollar in
October, when the rouble began to strengthen against
the dollar while the US currency fell strongly against the
euro.
The bank yesterday indicated that its efforts to keep the
rouble closely pegged to the dollar had caused the
Russian currency to suffer against the strengthening
euro, rendering the old policy "inexpedient."
The rouble has fallen by 30 percent against the euro since
January 2002, fuelling inflation in a country that conducts
about 65 percent of its trade with the eurozone.
"The rouble's performance has been highly correlated with
the dollar. Now it will be more aligned with the euro," said
Paul Timmons, economist at Moscow Narodny Bank.
He added that the new policy would help Russia move
toward a free float of its currency in 2006, a target set by
President Vladimir Putin.
This euro weighting will be increased in future to "a level
that corresponds to [the] tasks of the exchange rate
policy", leading some to conclude that the euro could
ultimately account for 65 percent of the basket, prompting
a further rebalancing of Moscow's $128 billion (€99 billion,
£68 billion) of gold and forex reserves.
Julia Tsepliaeva of ING Financial Markets said that with
inflation currently running at 11.7 percent, Russia had
been forced to stem rouble weakness in order to meet
its 2005 inflation target of 8.5 per cent.
Moscow's move illustrates the growing global importance
of the euro at a time when a number of central banks
have been shifting reserves out of the dollar into the
shared European currency.
"It is symptomatic of a global trend and reflects the
growing international role of the euro," said Ralph
Sueppel, head of emerging Europe strategy at Merrill
Lynch.
"It is beginning to take its place in portfolios."
The Bank of Russia said it has been using a basket
consisting of 0.1 euro and 0.9 dollars to target
exchange rate policy since February 1. With the euro
trading near $1.30, this currently gives the euro a 13
percent weighting in the basket. |
