Russia begins placing stabilisation fund in forex

July 26 | Updated: Jul 27 2006, 05:30am hrs
Russia began placing part of its ruble-denominated oil fund into foreign currencies as a first step toward boosting the return on its investment.

The ministry started converting part of its holdings from oil revenue on July 24, the finance ministry said in a statement late on Tuesday. The value of the two-year-old fund surged to 2.067 trillion rubles ($77 billion) at the end of June from 1.68 trillion rubles at the end of March. The deposits will be held 45% in euros, 45% in dollars, and 10% in British pounds.

Russia wants to invest part of the money it has set aside from oil sales to cover budgetary needs should commodity prices fall and set aside the rest for future generations, President Vladimir Putin said on May 30. The government is now debating which foreign securities it should buy to boost the interest it gets on the fund.

For a country as cash-rich as Russia, it makes more sense to hold your assets in a basket of currencies, said Michael Ganske, head of emerging-market research in Frankfurt at Deka Investment GmbH, which manages about $7 billion. Its mark of how developed Russia is becoming as an economy.

The finance ministry Plans to convert the fund into foreign currency in several stages. It didnt specify the amount it converted this week. Russia, the worlds biggest oil exporter after Saudi Arabia, diverts some of the revenue from oil thats priced above $27 a barrel. Norway, the third-largest exporter, has had a similar fund since 1996 that is now worth about $230 billion.

The conversion was carried out by the central bank using its official exchange rate and didnt affect the currency market, the statement said. The money will be placed in the federal treasurys foreign currency accounts at the central bank, the statement said.

Russia, which is heading for an eighth consecutive year of economic growth, is benefiting from a commodities-led boom, helping swell the nations foreign exchange reserves swell by almost 50% this year to $255.7 billion.

The influx allowed the government on June 30 to sign an agreement to repay its entire Paris Club debt of $22 billion, the largest ever early repayment to the club.

Bloomberg