Sberbank is a huge state-controlled financial institution, dating back to the Soviet era, and is reputed to be the safest bank in the country. Following the global financial crisis and resulting credit crunch, wholesale market funding has effectively been closed off to Russian banks, making them seek funding from individuals. With its reputation for safety, Sberbank succeeded in attracting over 600 million roubles (US$20.09 billion) in deposits from this source last year.

Individuals make up approximately 70 per cent of Sberbank's funding base, to whom it pays an average 6 per cent annual interest rate and the bank is home to 50 per cent of retail deposits in the country.

Natalya Konovalova, responsible for Sberbank's deposit management, told a news briefing that the institution has factored in quite "aggressive growth plans" of 15 to 20 per cent for 2010, in line with the market.

Funding costs are vital for the bank's financial performance and Konovalova added that "the average cost of the deposits portfolio for the bank stays at roughly 6 percent in rouble terms. Now, we suggest the market trend is toward a further decline in the deposit rates."

According to local dealers, the CBR has moved the rouble’s band to a position of 34.60 versus the dollar-euro basket following its purchase of US$700 million on the market. The lower boundary had previously been at 34.65.

The Russian central bank maintains the rouble in a floating corridor, currently estimated by market participants to be at 34.60-37.60. In order to avoid rapid fluctuations in the rouble rate, the regulator shifts 5 kopeks for each US$700 million in purchases made.

On Tuesday, the CRB moved the lower boundary of the floating basket band by 5 kopeks to 34.65 so this is the second shift this week.

Oil prices have strengthened and headed towards US$81 a barrel today as China indicated it would maintain its economic stimulus. This has resulted in increased consumer confidence and a renewed interest in more risky but higher-yielding assets such as the Russian rouble.

Oil remains Russia's chief export and, together with gas production, accounts for approximately one third of the country's GDP.

This rise can be attributed to a renewed interest in riskier assets, relatively strong crude oil prices and the final payment of monthly tax bills.

The rouble is kept in a floating corridor by the Russian Central Bank, which is currently estimated by market participants to be 34.70-37.70. In order to avoid rapid fluctuations in the rouble rate, the central bank shifts 5 kopeks for each US$700 million spent. So, the current position of the rouble is at the lower end of this corridor.

The position of the rouble against the dollar remained virtually unchanged at 29.95, but the currency gained considerably against the euro. At 40.35 per euro, it was a quarter of a rouble up on the euro at close of business on Friday.

Analysts at Renaissance Capital in Moscow have advised: "If the commodity market picture remains unchanged, any notable fluctuation (by 50 kopecks or more) of the rouble/basket rate from the lower end of the band should be considered as an opportunity for opening long positions in the rouble/basket".

This morning, the rouble was trading at 34.84 versus the dollar-euro basket, four kopeks weaker than at close of business on Thursday.

The weakening of the rouble could be attributed to an evening out of recent gains against the globally strengthening euro. On Friday morning trade was at 40.78 roubles per euro, 20 kopecks down on Thursday's close. However, the rouble gained some kopecks on the dollar, strengthening to 30.04 per dollar versus 29.97 at the previous session's close.

Oil is Russia's chief export and, along with gas production, makes up approximately one third of the country's GDP. Oil remained at $78 on Friday, despite falling over 2 per cent on Thursday, amidst fears for the US economy, offering some reassurance for investors who had been betting on an increase in crude prices to help spark a rouble gain.

However, economists at Capital Economics have predicted that the likelihood of a repeat in boom prices for oil is slim.

With February tax and other bill payments due this week, it is likely that local rouble demand has peaked. The rouble has a tendency to strengthen at the end of every month when tax and other bills are due for payment.

The strength of the rouble has been helping to keep inflation down and there is a small upside risk on CPI. Nevertheless, there is a possibility that the rouble may weaken, so the CBR may be unwilling to reduce the rate further.

Demand in Russia continues to be weak and the unemployment situation has worsened. As a result, annualised inflation declined in January to 8% and a further decline is predicted this year. Average inflation for the year is estimated to be around 7%.

Due to the strong rouble, weak domestic demand and this disinflation, the CRB wishes to stimulate lending and support the real economy. In short it wishes to act like a typical central bank and deliver market monetary policy guidance.

However, with the weak fiscal position and risk of the rouble weakening, the Russian Central Bank will need to be careful. Despite signs that the domestic market may be in recovery, demand in the country is predicted to be weak for some time yet and there is a limit to how much the central bank will be able to cut rates.

Dealers have forecast that the regulator's boundary could be reached as early as tomorrow after the currency firmed as far as 35.05 versus the euro-dollar basket and as far as 30.09 per dollar - its strongest in almost a fortnight.

Russia's key export – Urals oil – jumped over two per cent to above $72 a barrel, prompting analysts to note that upward pressure on commodity prices could keep the rouble supported in the coming days.

Next week's month-end domestic tax payments – estimated at around 370 billion roubles - are further expected to benefit the rouble.

The firming-up of the Russian currency comes in the same week as a report from the Association of Russian Banks suggesting that the country's banking system needs to set aside between 1.25 trillion roubles and 3 trillion roubles to cover its bad debt.

Credit risks and the possibility of an equity market bubble are identified as the main threats to Russia's recovery from recession.

A statement from the ministry to journalists today suggested that more financial bailouts were on the cards for the indebted region, which was the greatest beneficiary of state financial aid in 2009.

The government has already spent 10 billion roubles on helping the Moscow region and it looks like more is to come. The statement from deputy finance minister Anton Siluanoy read: “I do not rule out that we will offer more help in 2010, but it will come in much lower amounts than last year.”

For its 2010 budget, 140 billion roubles has been set aside for state aid packages, however, some 50 billion is intended to pay for improvements to the country’s infrastructure.

Last year, the government pledged to honour the Moscow region’s debt, which resulted in it lending a total of 44 billion by the end of the year. Some 30 billion of this was made up of the three-year loans, the rest was a subsidy.

The commodity went above $72 per barrel for the first day in five after signs that the European central bank may step in and assist Greece with its budget deficit.

Concerns that rising deficits in Greece, Portugal and Spain might hamper economic recovery were behind last week's worst drop in three months for Russian stocks, with oil falling to a seven-week low.

Natural gas monopoly Gazprom gained 1.3 per cent to 1,601.49 roubles this morning, marking the first gain in five days after a drop of 2.1 per cent yesterday.

Shares of Sberbank, the country's biggest lender, rose 1.2 per cent to 80.25 roubles, after falling 4.6 per cent yesterday to 79.28 roubles a share - the lowest level since mid-December.

Though they represented the world's best performers last year - among over 90 indexes tracked by Bloomberg - Russian stocks have retreated on recent speculation that higher interest rates in China will lessen demand for raw materials from the fastest-growing major economy.

Having lost six per cent, Russia's Urals oil blend - a major driver for the country's economy, as well as its currency - is on track for its biggest two-day decline since September.

In its worst daily showing for 2010 so far, the rouble eased to 30.56 per dollar as Russian funds witnessed an outflow for a second week.

Analysts commented that sellers will dominate among Russian participants while the mood on the international market remains pessimistic.

Other factors weighing on the rouble include an abundance of liquidity on the domestic market, with easy cash available to buy dollars, and a lack of domestic demand. The latter is known to peak towards the end of the month when exporters face the need to convert foreign currency earnings to pay taxes.

Significant such sales on the part of exporters are not anticipated by dealers, however.

On a positive note, the rouble traded at 41.80 against the euro.

Gazprom, which meets around a quarter of Europe's gas needs, said net profit for the third quarter of last year increased to 174.63 billion roubles from 131.65 billion roubles a year earlier. Its market share had previously dropped because of a rise in the use of alternative energy sources in Europe.

Although Russia accounts for around a fifth of the world's gas output and 12 per cent of global oil production, the US overtook the country last year as the world's biggest producer of natural gas, partly because of increased output of shale-gas.

Gazprom also revealed this week that it paid off $4 billion in debt at the end of 2009, cutting the 1.5-trillion rouble debt reported for the end of the third quarter of last year.

Meanwhile, Rosneft - the number one oil firm in Russia - has announced that its net income for 2009's October-December period more than doubled because of higher oil prices and increased production at its key East Siberian oil field.