Amid Gloom, Russian Reserves Post Record Rise

Russia's gold and foreign exchange reserves rose by a record $15.4 billion in the latest week thanks to a stronger euro and a rise in commercial banks' foreign currency deposits.
The reserves, the world's third largest, rose to $450.8 billion on December 19 from $435.4 billion in the previous week, central bank data showed, even though the central bank spent an estimated $7 billion to support the rouble.
The reserves have shrunk by a quarter from early August peaks, dented by the central bank's defense of the rouble.

Some of the money is also being used to help Russian companies to refinance their foreign debt.
The rouble has come under pressure as Russia's key export earner, crude oil, falls in price.
Russia has run seven small devaluations of the rouble since oil prices began to slide. The currency is now nearly 16 percent below August's historic peaks. Oil, Russia's main export, has lost 76 percent since July peak.
The euro, which accounts for about 45 percent of Russia's gold and forex reserves, strengthened by about 4 percent against the dollar during the week between December 12 and December 19. A stronger euro boosts the dollar value of reserves.

First Deputy Chairman of the central bank Alexei Ulyukayev said the reserves rose also due to an increase in foreign currency deposits in the central bank.
Many Russian banks took long positions in foreign currencies in anticipation of the rouble's devaluation, contributing to overall capital flight and prompting a backlash from President Dmitry Medvedev and Prime Minister Vladimir Putin.
Russian authorities told commercial banks not to increase their foreign currency positions or risk losing their access to the central bank's liquidity through collateral-free auctions.

Instead, the central bank gave banks a possibility to park their foreign currency in interest-free accounts with the central bank. Ulyukayev said "several billion" were currently held in these accounts.
Commercial banks' accounts in the central bank are matched by corresponding foreign currency positions in the central bank's assets, which count as part of the international reserves.
Russia will also tap its $132.6 billion Reserve Fund, which serves as a safety cushion for the budget and is set to stay at around 10 percent of Russia's GDP, to plug holes in the next year's budget.

The Kremlin's aide on economy Arkady Dvorkovich told Vesti 24 news channel on Thursday Russia will run a deficit of 3-4 percent of gross domestic product (GDP) in 2009 if global economic growth resumes in the second half of the year.
Dvorkovich said that in case the global economy will be contracting throughout 2009, the deficit will not exceed 5 percent of GDP. Russia expects the economy to grow by 2.4 percent in 2009 if the average price of oil stays at $50 per barrel.

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