(Updates with officials, details)
By Gleb Bryanski
MOSCOW, March 20 (Reuters) - Russia’s gold and foreign exchange reserves, the world’s third largest, have surged past the $0.5 trillion threshold, indicating the country’s oil bonanza may last longer during a global downturn. The central bank said on Thursday the reserves rose to $502.1 billion on March 14 from $494.5 billion on March 7 and analysts said the data confirmed the regulator had resumed purchases of foreign currency in March after a pause at the start of the year.
Russia, the world’s No.2 oil exporter, has been relatively insulated from turbulence in global financial markets as prices for oil, its main export commodity, hit record highs on speculative demand and supply uncertainty.
The spot price for Urals URL-E, Russia’s main export blend, dropped to $95 per barrel from $105 earlier this week as investors cut their exposure to commodity assets. The Russian 2008 budget is balanced at an average price of $74 per barrel.
The inflow of currency from energy exports in March has neutralised capital outflows, which netted at about $18 billion in January-February and are expected to net at about $9 billion in March.
“The inflow of foreign currency is so big, the price for oil is so high, that it beats everything,” said Yevgeny Nadorshin, analyst at Trust Bank, suggesting Russia has returned to its “natural” state of reserve growth of the past few years.
The continued inflow of oil windfall revenues may lead to an easing of the recent liquidity shortage, a possible decline of interest rates and renewed appreciation pressure on the Russian currency.
“It is positive for liquidity. It is positive for interest rates,” Nadorshin said, adding renewed currency inflows would flood the money market with liquidity, badly needed by banks and corporations that have foreign debt.
Russia’s largest oil company Rosneft (ROSN.MM) said this week it had completed repayment of the second, $5.2 billion tranche of the short-term loan it raised last year to finance acquisitions.
“There is a certain relief which, among other things, is related to Rosneft repaying its debt,” said Nikolai Kashcheyev, economist at the state-owned VTB Bank. “But by no means is this relief a long-term factor.”
The increase comes amid a debate on how the country should use the reserves, which include $160 billion in the two oil funds — the National Wealth Fund (NWF) and the Reserve Fund, and whether the Russian economy is overheated and needs to slow.
The reserves are currently invested in dollar, euro and British pound assets and include small holdings in yen and Swiss franc. The central bank has said it is mulling further diversification but has a limited choice of currencies. Outgoing President Vladimir Putin, who will most likely take over as Russia’s next prime minister, asked his cabinet to alter the reserves’ management and find ways to help banks, struggling to cope with the liquidity shortage.
Putin’s economic advisers, officials at the economy ministry and business lobbies have proposed cutting taxes and investing part of the $32 billion NWF at home to maintain high growth rates but Finance Minister Alexei Kudrin says the economy is overheated.
Kudrin, who resists fiscal loosening plans already backed by Putin and President-elect Dmitry Medvedev, has warned against over-reliance on energy prices and said the global financial turmoil was yet to hit Russia.
“At the moment the oil prices cannot be viewed as reliable, stable and predictable,” Kudrin told the parliament this week. “The global crisis is still posing additional challenges and risks for Russia in 2008,” he said. (Reporting by Gleb Bryanski; editing by Stephen Nisbet)