Central Bank Sells $5Bln to Aid Ruble

The Central Bank sold almost $5 billion Monday, more than in any single day since the end of the country's war with Georgia, as it sought to support the ruble amid turmoil in financial markets, MDM Bank said.

The bank sold the dollars from the country's $562.8 billion international reserves, said Mikhail Galkin, head of fixed-income and credit research at MDM in Moscow, citing the bank's currency traders. It was probably the biggest one-day sale since Aug. 10, two days before the war ended, he added.

Central Bank spokesman Vladimir Lavrov would not comment. Other bank officials did not respond to questions.

"It's a combination of general risk aversion across the continent coupled with dollar strength," Galkin said. "People are either holding their dollars or buying dollars and waiting to withdraw their holdings."

Despite the intervention, the ruble fell to its weakest level against the dollar since March 2007 as the credit crisis spread to Europe and the price of oil dropped for a fourth day. The ruble has lost 11 percent against the dollar since the beginning of August.

The currency was at 30.40 against its dollar-euro basket — the level that banks have said is the weak end of a trading range allowed by the Central Bank. It has been trading at or around 30.40 for the past four days.

"The financial crisis is widening beyond the U.S. and that means that risky positions, like those in Russia, are being cut," said Ulrich Leuchtmann, head of emerging-markets currency strategy in Frankfurt at Commerzbank, which rates itself as one of the top 10 ruble traders.

The currency fell as much as 1.2 percent against the dollar to 26.30, the lowest since March 13 last year. It was at 26.25 by 7:37 p.m. in Moscow, down from 25.98 on Friday. It gained 0.8 percent to 35.50 per euro, from 35.78. It was at 35.38 earlier Monday, the strongest in a year.

But a survey last week of 12 strategists and analysts suggested that the ruble might strengthen almost 1 percent by the end of 2008 as Russia's support package for markets boosts liquidity.

The currency will rise to 30.15 against the basket by the end of 2008 and to 30.30 by Oct. 31, according to the median estimate. Since September, the government has pledged $150 billion in loans, tax cuts, delayed tax payments and other measures to support banks and companies.

Russia is "quite vulnerable" to the credit crisis because of a lack of liquidity and market confidence, said Andrei Sharonov, managing director of Troika Dialog. As much money may have been withdrawn from the country as entered it this year, Deputy Finance Minister Andrei Klepach said, Interfax reported.

Russia's government bonds were mixed, with the yield on the 7.5 percent benchmark bond due in 2030 jumping 33 basis points to 7.50 percent, a four-year high. The 8.25 percent bond due in 2010 rose, sending the yield 10 basis points lower to 5.52 percent.

"Everyone has to cut risk," said Commerzbank's Leuchtmann. "And anyone in that position is likely to put his Russia position under consideration right now."