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Russia to offer more floating-rate bonds

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Budget deficit seen at 2% of GDP this year -finmin

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Russian banks bought 86% of OFZ in Oct-Nov -MOEX

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Russia selling record amounts of debt as oil price kicks in

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This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine

(Adds finance minister, detail, bullets)

MOSCOW, Dec 8 (Reuters) - Russia is ready to offer more federal bonds with floating rates, Deputy Finance Minister Timur Maksimov said on Thursday, and plans to offer a range of debt instruments to reach its 3.5-trillion-rouble ($55 billion) borrowing target in 2023.

The finance ministry equalled its record for the largest volume of OFZ bonds sold at a single debt auction on Wednesday, continuing to borrow heavily as an oil price cap that could squeeze export revenue kicked in.

Russia had planned to raise up to 3.26 trillion roubles this year. After suspending debt auctions for more than six months, the government has been borrowing heavily in the final quarter and is close to hitting that target.

The central bank was forced into an emergency rate hike to 20% in the days after Russia sent troops into Ukraine in February, but has since lowered it gradually back to 7.5%.

Maksimov said the finance ministry expects the market situation and rates to return to target levels.

The central bank's "neutral" rate range is 5-6%, but analysts

polled by Reuters expect the bank's key rate to end next year at 6.75%.

"Today's yields will seem very attractive," Maksimov said at a debt market conference. "Therefore, in such a situation, we are ready to offer a greater volume of floating rates and our confidence is shown by our actions on the OFZ market."

Russia's 10-year OFZ bond yields stood at 10.14% on Thursday. Yields move inversely to prices.

Maksimov said the market had a limited appetite for large amounts of interest rate risk and, by offering floating rate bonds, the ministry was helping to alleviate fears and instil some confidence.

"We are showing with our actions that we are ready to take interest rate risk, and that the uncertainty is less for us than it probably is for the private sector," Maksimov said.

'URGENCY OF THE MOMENT'

The ministry has long been wary of issuing too high a volume of floating-rate bonds or "floaters", whose interest payments move in line with benchmark yields, but Maksimov said that "today this is justified, given the urgency of the moment".

Finance Minister Anton Siluanov said Russia's budget deficit would be around 2% of GDP this year and next, Interfax reported, given that the government is carrying out large operations on the financial market and budget spending will be high towards the end of the year.

Russia is diverting cash to support its military campaign in Ukraine, with surging domestic security and defence spending set to cause funding for schools and hospitals to be slashed next year.

Foreign investors' holdings of OFZ bonds fell in the months leading up to the conflict in Ukraine and are now at their lowest in a decade.

Russian banks have been taking up the slack, Gleb Shevelenkov, director of the debt market department at MOEX Group, which runs Russia's largest exchange, said on Thursday.

"Banks are carrying the (OFZ) market on their shoulders," he said, noting that Russian banks snapped up 86% of OFZ bonds offered in October and November.

Last year, Russian banks accounted for 72% of the primary OFZ market, his presentation showed. ($1 = 62.9000 roubles)

(Reporting by Darya Korsunskaya and Elena Fabrichnaya; Writing by Alexander Marrow; Editing by Susan Fenton, Jason Neely and Arun Koyyur)