FYI | Feb 09 2007
By Rudi Filapek-Vandyck
The Russian central bank has changed the composition of its operational currency basket from 60% USD and 40% EUR to 55% and 45% respectively.
Analysts and market watchers are quick to point out this does not mean a change in the composition of Russia’s official currency reserve which consists of roughly 50% USD, 40% Euro, and 8-10% GBP. The remainder is in JPY.
Similarly, the announced decision has no impact on the so-called oil stabilisation fund (OSF) which has a composition of 40% USD and EUR, 10% GBP and RUB.
The operational basket, with the announced changes effective today, is the one the central banks uses to peg the RUB against on a daily basis.
Since the introduction of the currency basket in 2005 the central bank has gradually scaled back the weighting of the USD from the initial 90% to now 55%.
The gradual reweighing is in response to the continued weakness of the greenback and analysts at Danske Bank believe the latest change can therefore only be interpreted as the central bankers are concerned about further US dollar weakness.
They point out that the reduction of the US dollar’s weighting is part of a longer term strategy to diversify the currency composition and to have a peg that better reflects Russia’s trading partners. Currently, Euroland is Russia’s largest trading partner, buying 45% of the country’s exports.
Danske Bank believes further reductions of the USD’s role in the peg-basket can be expected, especially if the greenback would weaken further in 2007. The analysts do not think the USD weighting will fall below 50% unless another currency is included in the basket.
Longer-term, Danske Bank believes Russia will ultimately move towards a more freely floating currency, either through adopting more currencies in the operational basket or by letting the RUB fluctuate more freely within a band.