Russia reserves drop past $500 bln as rescue takes off

By Gleb Bryanski

MOSCOW, Oct 30 (Reuters) - Russia's gold and foreign exchange reserves fell below the $500 billion mark for the first time in eight months, data showed on Thursday, suggesting the Kremlin's cash is starting to flow into the economy.
The central bank data showed reserves fell $31 billion in the week to Oct. 24 to stand at $484.7 billion. Traders told Reuters the central bank spent only $13 billion propping up the rouble during the last week.
"A stunning one-week drop, more than twice the fall in the previous weeks," said Anna Zadornova from Goldman Sachs.
The rating agencies are closely watching Russia's reserves, which are dwindling as the central bank burns foreign currency in daily market interventions. Many analysts say such policy is unsustainable and Russia will soon devalue the rouble.
Credit ratings agency Standard & Poor's, which cut Russia's outlook to negative from stable last week, warning of the costs of bailing out troubled banks and a rising risk of a budget deficit, declined to comment.
"The drop in reserves corresponds to a potential drop in the total foreign debt, so I do not see a drama there," said Yevgeny Nadorshin, analyst at Trust Bank.
The euro, which accounts for about 40 percent of Russia's reserves, weakened by 6 percent against the dollar, which accounts for about 49 percent. Sterling, which makes up about 10 percent of reserves, also weakened versus the U.S. unit.
That also contributed to the fall of reserves, whose total value is calculated in dollars.
UNDER ATTACK FROM POPULATION
Russia also plans to use $50 billion of its reserves to help corporations redeem their foreign debt. United Company RUSAL, owned by Russia's richest man Oleg Deripaska, on Wednesday became the first beneficiary, securing a $4.5 billion loan.
The government has also disbursed around $3 billion to billionaire Mikhail Fridman's Alfa Group and state oil major Rosneft to help refinance their foreign debts.
The central bank plans to transfer the cash in small tranches to state-owned VEB bank, also known as Development Bank, tasked with administering the package. Reuters sources said VEB's board approved loans worth a total of $7.9 billion.
The central bank has spent tens of billions of dollars of its reserves since August to prevent the rouble from weakening beyond the 30.41 level against a euro-dollar basket.
Several of the western banks investing in Russia said last week they expect the central bank at some stage to allow the rouble to depreciate.
"We expect the central bank to continue to support the currency in the near term by defending the rouble in an effort to calm the population's fears ... and because it perceives itself to be under speculative attack from the markets," Goldman's Zadornova said.
From last week, the bank introduced daily limits on currency swap operations in a further bid to deter speculators from betting on a fall in the rouble. On Thursday, the day's swap limit was set at zero for the first time.
The central bank also told commercial banks to keep a lid on growth in their foreign currency denominated assets in a bid to stop currency speculation and a flight from rouble deposits, which accelerated sharply in October.
The central bank warned it will monitor the banks' compliance with the instruction and make decisions to grant individual banks collateral-free loans based on the results of the monitoring.
"We believe the currency is mainly under attack by the Russian population," said Zadornova.
The rouble gained four kopecks versus the currency basket to trade at 30.34 by 1255 GMT, possibly drawing some cheer from this week's resurgence on Moscow's bourses. (Additional reporting by Toni Vorobyova and Yelena Fabrichnaya) (Reporting by Gleb Bryanski; Editing by Andy Bruce)

Courtesy: Currency Conversions Online | Reuters | guardian.co.uk