June 21, 2017 / 3:11 PM / 2 months ago

Rouble drop justified by oil, sanctions, Russia central bank analyst says

A shop assistant (L) counts Russian rouble banknotes as customers gather at a store selling Apple products at the State Department Store, GUM, in central Moscow, Russia September 23, 2016.Sergei Karpukhin/File Photo

MOSCOW (Reuters) - A recent drop in the rouble rate to 60 versus the dollar was "normal" given Western sanctions and a fall in oil prices, which, if they continue, may further batter the rouble, a senior analyst at the Russian central bank said.

The free-floating rouble lost nearly 3 percent of its value against the dollar this week, hit by a slump in oil prices, new United States' sanctions against Moscow and fears of more financial and economic penalties from the West.

"The new sanctions became a good moment for closing long rouble positions that non-residents had," Valery Smirnov said.

In a rare comment on the rouble rate from a central bank official, Smirnov said that the recent rouble depreciation was "generally adequate to changes in fundamental factors."

Smirnov, who heads fixed income, currency, commodity and global macro research at the central bank's monetary policy department, said the rouble is likely to trace oil prices in the following manner: The rouble would ease by 2.5 percent should oil prices decline by 10 percent.

"If oil prices stay at the same levels, the exchange rate will stay approximately at the same levels," Smirnov told an annual Thomson Reuters conference for market traders in Moscow late on Thursday.

Commenting on other factors capable of moving the rouble, Smirnov took a cautious stance.

When asked about a possible sell-off of Russian treasury bonds, known as OFZs, by foreign holders, Smirnov said he would not expect a "mega impact" on the rouble exchange rate from such a flight from Russian assets.

Smirnov said he spoke to major holders of OFZ bonds about the implications of possible sanctions that could ban foreigners from buying into Russian state debt. He said it was unclear how they would act.

OFZ bond holders may also decide to ditch the paper if they lose their high-yielding appeal. This, however, is unlikely to happen this year given the outlook for the central bank's key rate.

Smirnov said that the central bank will keep on trimming the key rate this year but it unlikely to cut it to as low as 6.5-7 percent, an area described by the bank's Governor Elvira Nabiullina as neutral for its monetary policy

The central bank's key rate is now at 9 percent, far above annual inflation readings that have fallen to the bank's target of 4 percent.

Smirnov also noted that rouble volatility declined to 10-12 percent in the first half of 2017 from around 20 percent seen before.

Fluctuations in the rouble rate do not prompt Russian citizens to start frenzied buying of dollars and euros anymore, Smirnov said, adding that households' demand for hard currencies has been recently stable.

Smirnov said demand for foreign currency from households last peaked in September when Moscow lifted a ban on charter flights to Turkey, one of the most popular holiday destinations among Russian tourists.

Writing by Andrey Ostroukh; Editing by Toby Chopra

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