Russia's international reserves fell by $30.3 billion last week, the second-biggest fall on record, as the central bank continued to sell currency to slow the decline and support the Russian rouble
Russia's international reserves, the worlds third largest, after China and Japan, now stand at $396.2 billion, from $426.5 billion on 9th January, down more than 34 per cent (nearly $200 billion) than its peak of $598.1 billion in August 2008 the Russian central bank reported.
The reserves comprise of 45 per cent dollars, 44 per cent euros, 10 per cent British pounds and 1 per cent Japanese yen.
The Russian central bank has utilised that money to support the currency and evade a free-fall to avoid panic.
The central bank generally does not allow the rouble to fall more than 1 per cent against its dollar-euro basket in a day. Since August the rouble dropped 30 per cent against the dollar, when the oil prices fell resulting in huge capital outflows.
The Rouble has dropped more than 20 per cent against the basket and a little more than 10 per cent against the euro since August.
The central bank got into action in mid-November, but has subsequently allowed the rouble to weaken in the past two weeks, which has led to the situation today.
Russia's central bank said that it intends to allow the Rouble to fall by about 10 per cent against its dual-currency basket of dollar and euros thereby, curtailing the depletion of foreign exchange reserves.
Russia needs to devalue the rouble to stir up the economy, which may fall into a recession in the first half of the year, said Arkady Dvorkovich, economic adviser to President Dmitry Medvedev, last month.
The central bank had set a new upper limit for the rouble at 41 against the dollar-euro basket, in an attempt to stop the daily devaluations which, since November eroded one-fifth of the Russian currency's value.
The central bank is now trying to find a credible level for the rouble in the market, according to some analysts.
Russian experts were not surprised at the sharp decline, as the Russia's policy was of weakening the Rouble. The central bank has to still sell large amounts of dollars to support the national currency.
This resulted in the international reserves collapsing because of the central bank's currency interventions, and also due to the revaluation of the reserves denominated in euros.
The central bank has widened the band for trading of the Rouble against its dual-currency basket for the ninth time since1 January and more than 20 times since early November, in order manage the capital outflow estimated at around $130 billion in 2008.
The other factors that resulted in the Russia's reserves falling are measures incorporated to reduce the impact of the global credit crisis and global recession, policies to sustain the international borrowings of companies and finally to stimulate the domestic economy.
Russia is facing the worst economic crisis in 10 years. A sharp devaluation would have revived memories of the sudden rouble collapse during the financial crisis in1998.
Since 1999 it has has had budget surpluses and had strong revenues from the rising price of oil, Russia's main export.
Amid the global economic slowdown, Russian economy too is badly hit due to sliding oil prices, slump in demand for metals and increasing corporate debt, and will fall into recession this year like other countries globally.
Dvorkovich warned that the country could run a budget deficit in 2009 for the first time in a decade. "The deficit is caused by the fall in oil prices, above all," he told Russian news agency RIA Novosti, adding that the government would tap into its reserves accumulated from years of high oil prices in order to cover the gap.
Dvorkovich has also held out the possibility that Russia could seek external loans to overcome the fallout from the global financial crisis.
Russia would have to redraft its federal budget on the basis of the current price of oil at $41-per-barrel which is less than half the projected amount of $95, said Alexei Kudrin, Russian finance minister.