Kudrin Says Ruble to Appreciate Less in 2008

RIYADH, Saudi Arabia -- The ruble will appreciate less this year than in 2007 against the dollar/euro basket used by the Central Bank to guide its currency interventions, Finance Minister Alexei Kudrin said Tuesday.

"[It will strengthen] not significantly, less ... compared with the previous year," Kudrin said during a visit to Saudi Arabia for negotiations on his country's entry into the World Trade Organization. The ruble appreciated by about 1.8 percent against the basket in 2007.

Inflation is expected to hit 15 percent in May, and the market widely expects the Central Bank to revalue the currency in an attempt to curb price growth.

Kudrin said achieving the Cabinet's 10.5 percent inflation target was still possible if prices for food, which have stoked inflation across the world in recent months, stay at their current levels.

"It could be possible, but in the final analysis it will depend on world prices for food commodities. If prices are as they are now, then we will be able to meet the inflation target of 10.5 percent," Kudrin said.

Many analysts have said reaching the Cabinet's inflation target will require a revaluation of the ruble of up to 4 percent against the basket, made of 55 cents and 45 euro cents.

The ruble has gained 3 percent this year as traders sold the dollar after the housing slump and turmoil in credit markets sparked concern that the U.S. economy was headed for a recession. The dollar rallied against 12 of its 16 major counterparts after U.S. Federal Reserve chairman Ben Bernanke said he was "attentive" to the currency's decline.

"People are buying the dollar against the ruble and selling the euro versus the ruble," said Ulrich Leuchtmann, an emerging-markets currency strategist in Frankfurt at Commerzbank. Bernanke's comments "were enough to impress the market and drew interest back into the dollar."

The Central Bank buys and sells rubles daily to contain it within a trading band. The ruble fell 0.1 percent to 29.63 versus the basket Tuesday.

The ruble was little changed at 29.61 against the basket from the start of March until mid-May. After banks including Merrill Lynch bet that the Central Bank would be forced to let it rise by as much as 4 percent against the basket this year, the Central Bank introduced a new currency intervention policy.

They now also buy and sell rubles at varied levels to deter speculators.

The bank would have allowed the ruble to slip versus the basket Tuesday as part of their new policy, Leuchtmann said. "But all it is doing is allowing people to buy it at a cheaper level."

The currency's gains have been curbed to limit the effect of its strength on exporters. The Central Bank may "very gradually" expand the band this year to help curb inflation, which accelerated to a five-year high of 14.3 percent in April, bank chairman Sergei Ignatyev said last week.

Reuters, Bloomberg