Russia banks coping with subprime crisis

By Douglas Busvine

MOSCOW (Reuters) - Russia's banking system is coping well with a liquidity crunch stemming from the U.S. subprime mortgage crisis, a senior central banker said in an interview on Monday.

"As of today, we don't see any significant signs of weakness," Konstantin Korishchenko, deputy chairman of the Central Bank of Russia, told the Reuters Russia Investment Summit.

There have been hefty capital flows of late, with the central bank stepping in to offer banks up to $12 billion in overnight funds in August after foreign investors pulled cash out of risky Russian assets.

The central bank has intervened on both sides of the market, both buying and selling dollars, to curb exchange rate volatility, managing to hold the rouble in a narrow range to its main policy target, a dollar-euro currency basket.

Korishchenko said he did not expect the rouble to be unstable in the runup to the election of a successor to President Vladimir Putin next March.

"We don't expect any instability in the rouble in relation to political events," Korishchenko, the central bank's point man for exchange rate policy, said at the Reuters office in Moscow.

"As regards risks of appreciation, we are already living in this environment and it has no relation with politics. As regards depreciation of the rouble, we have rather big reserves. For two elections it will be enough."

MASSIVE FIREPOWER

Since Russia's default and devaluation of 1998, Russia has accumulated $416 billion in gold and foreign exchange reserves, the world's third largest. That gives the central bank massive firepower to defend a stable exchange rate.

"After the (1998) crisis we were worrying over the risk of depreciation and we were trying to create a certain kind of support to bring a certain kind of confidence into the market," Korishchenko said.

"This has reversed into a problem of how to avoid excessive appreciation. There are quite a lot of analysts who expect further appreciation of the rouble because of our reserves.

"In such circumstances, we have to create an environment under which these risks of rouble appreciation and depreciation are reasonably balanced."

The rouble traded just firmer against the dollar on Monday but eased a touch to the euro, leaving it little changed against the basket, comprised of 55 U.S. cents and 45 euro cents.

Recent fluctuations in the rouble against the currency basket have led some analysts to speculate that the central bank is now targeting a corridor, rather than a fixed level.

Korishchenko said the distinction was a semantic one: "I don't see any difference in targeting a point or a corridor," he said. "Even if you are targeting a certain number, you should give a certain room for fluctuation."  Continued...