Nov. 28 (Bloomberg) -- Russia’s central bank raised its main interest rates for the second time this month in a bid to make the weakening ruble more attractive to investors, cap capital outflow and damp “inflationary trends.”

The refinancing rate will rise to 13 percent from 12 percent on Dec. 1, Bank Rossii said in an e-mailed statement today. The interest rate for one-day and seven-day loans from the bank in repurchase auctions will climb to 10 percent from 9 percent.

The increases are aimed at curbing the “negative effects of the ruble’s gradual devaluation,” said Nikolai Kashcheev, chief economist at MDM Bank in Moscow. Higher rates dissuade banks from converting rubles into foreign currency, he said. They also make lending to companies and individuals more expensive.

The central bank is scaling back its defense of the ruble after its international reserves fell 25 percent in less than four months. At the same time, the bank is struggling to maintain investor confidence in the currency as capital flight gathers pace and inflation remains above this year’s target.

Total capital outflow has soared to $190 billion since the start of August, triggered by the war with Georgia, slumping commodities prices and the seizure of global credit markets, BNP Paribas SA estimates. Annual inflation was 14.2 percent last month, compared with the government’s official year-end forecast of 11.8 percent. The inflation rate will end the year at about 13 percent, the central bank forecast in October.

‘Serious Problems’

Slowing capital outflow is the central bank’s top priority, analysts including Kashcheev said, explaining why the bank is raising rates at a time when others are cutting borrowing costs.

Bulgaria’s central bank cut the minimum reserve requirement for banks today after the Bank for Reconstruction and Development forecast expansion in central and eastern Europe will slow to 3 percent next year from an estimated 6.3 percent this year.

“We have serious problems with capital outflow, which totaled $50 billion in October,” said central bank Chairman Sergey Ignatiev on Nov. 19, referring to net private capital outflow. “This is happening because there are market expectations -- from the population, companies, of a weakening ruble.”

There are “several ways to fight this,” including high interest rates on the domestic market, Ignatiev said.

The ruble declined against the dollar and euro on speculation that the central bank scaled back its defense of the currency for the second time this week as falling oil prices force it to sell foreign-cash reserves. The currency weakened 1.2 percent to 27.7557 per dollar by 2:13 p.m. in Moscow, and depreciated 0.7 percent to 35.6420 per euro.

‘Risky Position’

Russian monetary authorities, in contrast to China’s, “seem to view external demand as more important for the economy than domestic demand, which is a risky position,” Kashcheev said. The extent of the global economic slowdown is still unclear and higher rates make lending money more expensive for Russian banks.

China announced on Nov. 9 a $586 billion stimulus package to boost growth, including spending on housing and infrastructure. It reiterated that it wanted banks to boost lending to smaller businesses. Russia’s government pledged more than $200 billion in loans, tax cuts and other measures to help banks and companies.

The rate increase “isn’t lethal” for business, billionaire businessman Viktor Vekselberg told reporters in Moscow. “The move is understandable. It’s part of an attempt to stop rubles from being exchanged for dollars. Let’s see how it works out.”

The 30-stock Micex index sank 2.8 percent in Moscow at 2:01 p.m. The dollar-denominated RTS Index declined 2.8 percent.

“The government’s priority is budget stability, but for business the ruble policy is more important,” Vekselberg said. “I hope that in the near future the government will weaken the ruble.”

To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

Last Updated: November 28, 2008 07:05 EST