Russian rouble weakens 1.8% against US dollar after government increases FX purchases

MOSCOW, Oct 5 - The Russian rouble weakened by 1.8% to 85.3 against the US dollar on Monday after the government announced a six-fold increase in foreign-currency purchases in October, in response to higher-than-expected oil prices and export revenues.

The government buys and sells foreign currency — mostly Chinese yuan — under the so-called budget rule, which stipulates that the foreign-exchange-denominated fiscal reserve fund should be replenished when oil prices are high and used to cover the deficit when they are low.

These transactions, carried out by the central bank on behalf of the government, account for a significant share of the country's foreign-exchange market and are a major factor affecting the rouble's exchange rate.

Between October 7 and November 6, the central bank's daily net foreign-currency purchases will total 12.1 billion roubles ($141.85 million), compared with 1.9 billion roubles a day in the previous month.

The average price of Russia's Urals crude blend in September, used to calculate October taxes, stood at $92 per barrel, a 40% increase from the previous month. Higher oil revenues would normally strengthen the rouble, but increased foreign-currency purchases are offsetting this effect, analysts said.

"The increase in foreign-currency purchases under the fiscal rule absorbs a significant share of external foreign-exchange inflows, reducing the impact of high oil prices on the Russian currency," said Vladimir Yevstifeev, head of research at Zenit Bank.

The rouble is down by about 23% since May 20, when it hit its strongest level of the year at around 70.

Analysts polled by Reuters this month see the rouble weakening to 93 to the dollar in 12 months.

($1 = 85.3000 roubles)