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. Last Updated: 07/27/2016

Reserves Up $600M on Oil Dollars

Strong oil world prices have flooded Russia with petrodollars and sent the country's currency reserves soaring, prompting concern that the ruble may appreciate too quickly, economists said Thursday.

Active dollar purchases by the Central Bank sent gold and hard currency reserves of the world's second-largest oil producer to its second consecutive all-time high of $40 billion last week. That represented a 9 percent rise since the start of the year.

The reserves shot up by $1.2 billion in the two weeks to May 10 as the Central Bank bought dollars to slow the ruble's real appreciation and help exporters stay competitive.

"Roughly we can say that a $1 increase in the oil price leads to some 0.1 to 0.2 percentage point [GDP] growth rate. It is good from the budget's point of view, but that could have a damaging effect on domestic producers," said Peter Westin, a senior economist with Aton.

The Central Bank, a regular participant in the market, wants to keep real ruble appreciation in line with productivity gains as the currency's strength has been frequently blamed for the economy's inability to compete.

"The Central Bank will have a very hard time pushing the exchange rate down with these kind of export revenues," Westin said.

Most bankers expect the Central Bank to stick to its policy and keep a tight rein on the ruble's appreciation.

"Thanks to the existence of a sizeable lobby favoring a policy of a weak exchange rate for the medium term, we believe that sharp ruble appreciation is absolutely out of the question," said Alexei Zabotkine, an analyst with United Financial Group.