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Rouble at 32-month low vs major currencies

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Rouble's slide has caught economists off guard

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Weak rouble fuels inflation

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Weak rouble boosts state budget revenues

(Adds rouble below 120 mark to headline, lede, analyst quote on

countermeasures in para 7, background in para 13)

By Gleb Bryanski

MOSCOW, Nov 27 (Reuters) -

The Russian rouble weakened beyond the 110 mark to the U.S.

dollar on Wednesday, a threshold that some analysts believe

could prompt authorities to take action to support the currency,

which has fallen by more than 24% since early August.

The rouble's fall caught off guard economists who had

expected the Russian currency to hit the 100 mark against the

dollar in one year, according to the Reuters poll in early

November. It hit a 32-month low last week.

By 1300 GMT the rouble was down 3.42% at 109.10

against the dollar, after touching 111.20, according to LSEG

data. It was down by almost 2% at 14.97 against the yuan, also

the lowest level since March 2022, the first month of Russia's

invasion of Ukraine.

The rouble's fall has been compounded by a fall of more than

20% in the stock market so far this year as investors shift

their savings from stocks to deposits, which offer interest

above the central bank's benchmark rate of 21%.

"The market is awaiting the financial authorities' reaction

for the rouble's devaluation," BCS brokerage analysts said,

stressing that forex purchases "resembled panic in an

environment of uncertainty".

Analysts are now predicting that the rouble may hit 115-120

before the end of the year, with some calling on the government

and the central bank to take action such as forcing exporters to

sell more forex and increasing forex sales by the state.

"Possible measures may include increasing foreign

currency sales by the central bank through adjustments to the

parameters of operations under the budget rule and additional

capital controls," said analyst Sofya Donets from T-Bank.

INFLATION CONCERNS

The rouble's fall is fuelling inflation, which is set to

exceed the central bank's estimate for this year, working

counter to the regulator's painful monetary tightening with the

benchmark interest rate at the highest level since 2003.

The central bank estimates that the rouble's weakening by

10% adds 0.5 percentage points to inflation, implying that the

rouble's four-month fall could add 1.5 percentage points to the

current inflation rate.

"For the central bank, it represents a challenge in

combating rising prices," economist Evgeny Kogan said.

The central bank and the finance ministry did not respond to

a Reuters request for comment on the exchange rate.

The rouble's slide was exacerbated by the new sanctions on

Russia's financial sector, which disrupted foreign trade

payments, especially for oil and gas, creating a physical

shortage of currency in the Russian market, analysts said.

Most Russian major banks are now under the U.S. sanctions

and are therefore unable to carry out bank transactions in

dollars and the only remaining option to trade foreign currency

for them is to import large quantities of dollar cash.

All trade in dollars and euros moved to the over-the-counter

market after Western sanctions were imposed on the Moscow

Exchange (MOEX). As a result, the trade has become volatile and

opaque, with most banks disclosing data only to the regulators.

Many analysts stressed that apart from a new round of

tensions with the West over Russia's military action in Ukraine

and new financial sanctions, there were no fundamental reasons

for the fall, with prices for oil, Russia's main export, broadly

stable.

The weak rouble is beneficial for exporting companies,

according to Finance Minister Anton Siluanov, with prices for

Russia's energy exports mostly set in dollars.

It is also helping the Russian government to increase the

state budget revenues from energy taxes and export duties.

"The main reason for such a significant weakening is that,

in our opinion, this weakening is desirable, said Finam

brokerage analyst Nikolai Dudchenko. "Today, the exchange rate

is very much conducive to balancing the budget," he added.