MOSCOW, Feb 4 (AFP) - Russia's central bank said Friday it has begun to use the euro along with the dollar to determine the ruble's "real" exchange rate in order to keep the appreciation of Russian currency against the US unit from hurting exports.
The bank said it started using a dual currency basket made up of 90 US cents and 10 euro cents on February 1 and would raise the euro's share with time.
"A coming increase of the euro's share in the currency basket to a level appropriate for a fair exchange rate will be undertaken gradually by the Central Bank as market players adapt," the bank said in a statement.
A central bank source said the decision did not mean the Russian bank would increase the share of euros in its reserves or that the bank would start trading more actively on the European currency's Moscow market.
"This is only being done to determine the real, effective cost of the ruble to understand the ruble's true cost through a complicated mathematical equation," the bank source said.
"This won't affect real life, but market players may notice that the euro may start fluctuating slightly less and the dollar slightly more. But it will be a matter of cents," the source said. "There will not be any buying or selling."
Analysts said the decision was reached in part because the ruble had appreciated in real terms against the dollar as the Russian economy attracted inflows of investments in the US currency on the back of growing returns from oil and natural gas sales.
The bank had intervened heavily on the forex market in recent months, buying up the dollar to ease the ruble's appreciation, and some analysts said that the central bank had reached a decision to abandon that policy.
Russia's central bank reserves jumped nearly 10 billion dollars this week -- a part from a Chinese injection of cash for the purchase of Russian oil but another large chunk from the bank forex intervention.
"A couple of billion of dollars were accumulated by the Russian central bank on the back of forex intervention as it bought dollars to prevent excessive ruble appreciation," the United Financial Group said in a research note.
However such a policy feeds inflation as it releases rubles into the market without any mechanism such as a functioning local bond market to soak up the added cash.
Russia repeatedly failed to keep its inflation targets last year and analysts said the bank is now turning to a new strategy.
Analysts said that the euro's share of the basket may grow to up to a half in the coming months.
"We believe that the weight of the euro should be more than 10 percent, so that the promised increase could occur quite soon," said Austria's Raiffeisen bank.
The central bank said that its attempts to keep the ruble-dollar exchange rate level had led to wild fluctuations of the exchange rates of other currencies like the euro to the detriment of the country's trade.
Russians have used the dollar as the country's second currency since the Soviet Union's collapse and one Moscow official recently said that there were more dollars circulating in Russia than in any country outside the United States.
But trade has blossomed with Europe in recent years, with only a volatile exchange rate standing in the way.
"Considering the European Union's new role in Russia's foreign trade relations, and the euro's growth among the world's leading currencies, the existing 'dollar approach' has stopped corresponding to the interests of the Central Bank's policy," the statement said.
But the bank said that it would continue to "manage" the ruble's exchange rate -- code word for strong participation in the Russian forex market.
02/04/2005 16:49 GMT - AFP