Central Bank Chief: Ruble, Economy Will Weather Euro Crisis

ST. PETERSBURG — The economy and currency should weather the euro-zone crisis without serious implications, and there is no need to change the structure of reserves, Central Bank Chairman Sergei Ignatyev said Thursday.

"The [euro-zone] problem is more political than economic," he said. "With swift coordinated actions of European nations, the problem is fully solvable."

The Greek debt crisis has sent a shiver through investors across the globe, who rushed to ditch the euro for dollars and gold.

Ignatyev called the recent swings in the euro normal and said no changes to the structure of the Central Bank's gold and foreign exchange reserves — the world's third largest, worth some $450 billion — have been discussed.

"We are conservative, we do not change the structure of currency reserves — at least in recent months," he told reporters. "The euro moves one way, another way — one should get used to it."

Asked whether there were any plans to sell European assets from reserves, Ignatyev replied: "For now, I do not feel panic."

At the end of last year, Spanish assets accounted for 2.9 percent of the Central Bank's holdings, while Italian ones comprised 0.4 percent.

Nominally, Russia keeps the portion of its reserves in 47 percent dollars, 41 percent euros, 10 percent sterling and 2 percent yen. It has been gradually increasing the volume of gold, a trend that Ignatyev said would likely continue.

As a result of the euro-zone crisis, though, financial markets have become jittery and prices for oil and other goods have slumped — affecting the ruble.

The currency is slowly recovering from an 8 1/2-month low versus the dollar of 31.69 earlier this week, trading at 30.78 per dollar Thursday.

Ignatyev said the currency remained under the regulator's control, even if the control has softened somewhat.

"The exchange rate regime reflects much better the current volatile situation on global financial and goods markets," he said, adding later that exchange rate fluctuations of 2 percent to 3 percent per day are normal.

"The mechanism [of interventions] is very successful and corresponds to the situation and swiftly adapts to a new situation," Ignatyev said.

The Central Bank keeps the ruble within a floating corridor against a euro-dollar basket, shifting the band by 5 kopeks for each $700 million of interventions in the boundary. In addition, it buys up to $250 million to 300 million a day in "planned" interventions within the band.

Ignatyev said interventions have totaled about $5 billion so far this month.

He declined to comment on whether the Central Bank would continue its year-old monetary easing cycle — which has slashed the refinancing rate by 400 basis points to a historic low of 8 percent — with another cut this month.

"The Central Bank intends to follow monetary policy so as, on the one hand, to stimulate the growth of bank lending and thus economic growth, and on the other hand not allow inflation to exceed 7 percent this year or next," he told a banking forum.

He said year-on-year inflation was running at 5.7 percent as of Monday.

Economists and officials expect the inflation rate to increase in the second half of 2010, with pressure from stronger domestic demand and a traditional end-of-year increase in federal expenditures.

Ignatyev said inflation would also determine any need to increase minimum reserve requirements toward the end of the year, a move that would curb the volume of liquidity in the banking system.