Rouble weakens after Kazakhstan devalues tenge

MOSCOW: The Russian rouble weakened slightly on Tuesday as the market reacted to a 19 percent devaluation by neighbouring Kazakhstan, putting the brakes on the recovery in the Russian currency seen over the last week.

At 0830 GMT the Russian currency was down 0.2 percent against the dollar to 34.83 and 0.5 percent against the euro to 47.63, shedding 0.3 percent against the dollar-euro basket to 40.57.

"It's a reaction to the decision of the National Bank of Kazakhstan, which was a signal to buy foreign currency," said Pavel Demeshchik, trader at ING Eurasia.

"With its step the Kazakh partners have reminded us that the Russian central bank could carry out similar actions, for example widening the exchange rate corridor, especially as it fits in with its intention to allow a freely-floating rouble by 2015."

Kazakhstan said on Tuesday it would allow its national tenge currency to devalue by 19 percent to about 185 per dollar because of a decline in other emerging market currencies and to try to prevent large-scale speculation on the forex market.

Kazakhstan only accounts for around 3.2 percent of Russia's external trade, but its large devaluation has highlighted the vulnerability of all emerging market currencies, which are coming under pressure amid fears that the winding down of US monetary stimulus will shift money from emerging markets to dollar-based investments.

However, Natalia Samoilova, head of analysis at Golden Hills Capital, saw prospects for an imminent rouble rebound if the new head of the US Federal Reserve Janet Yellen announces restraint in the Fed's "tapering" policy later today.

"A large part of the market expects quite restrained comments from the new head of the Federal Reserve.

Any hints at a prolonged period of tapering the stimulus programme will lead to a mass fall in the dollar," she wrote in a morning note.

Russian stocks shrugged off any fears connected with possible further devaluation of the rouble, edging up during the morning.

At 0830 GMT the rouble-denominated MICEX index was up 0.5 percent to 1484 points, while the dollar-denominated RTS index was up 0.6 percent to 1344 points.