Russian Reserve Fund Hit by Euro Decline Versus Dollar, BNP Paribas Says

The 3 percent decline in Russia’s Reserve fund to $39.3 billion last month may have been the result of the euro’s drop, according to BNP Paribas.

The fund, which Russia uses to finance budget shortfalls, fell $1.3 billion in May, the Finance Ministry said on its website today. The euro dropped 7.4 percent versus the U.S. dollar in May. Forty-five percent of the fund’s reserves are allocated to euros, 45 percent to dollars and 10 percent to the British pound, BNP said.

“We believe that this decline is attributed to euro depreciation against the dollar,” Julia Tsepliaeva, head of research at BNP Paribas in Moscow, wrote in a note to clients today. “The current situation with the reserve fund increases incentives for more aggressive foreign borrowing.”

The euro depreciated almost 20 percent from last year’s peak in November as investors questioned its role as a reserve currency to rival the dollar as well as the European Central Bank’s ability to defend its legal tender. Russia cut the share of euros in its international currency reserves to 43.8 percent at the end of 2009 from 47.5 percent a year earlier, Interfax reported May 17, citing central bank data.

The euro fell 0.5 percent to $1.2247 at 3:22 p.m. in New York, from $1.2306 yesterday. Russia’s ruble fell 0.4 percent to 31.01 per dollar.

To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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