Ruble Allowed to Edge Down Again

MTCurrency exchange boards have tracked the ruble down as the Central Bank has removed some of its support.
The Central Bank devalued the ruble for a fourth time within a month on Friday as the price for Urals blend crude fell below $38 per barrel, its lowest since February 2005.

The ruble weakened by 1 percent to 31.62 in early trade against the basket of 0.55 dollars and 0.45 euros, which the regulator uses to guide its exchange rate policy.

The move also came one day after the country's gold and foreign exchange reserves posted their first weekly rise in two months, enabling Prime Minister Vladimir Putin to say the cash will help the economy weather the global crisis.

The Central Bank runs a managed float of the ruble, keeping it within a band against the basket. Given low oil prices and persistent capital outflows, the ruble will tend to weaken after a band widening.

"The current account surplus, which will likely disappear in the current quarter, no longer supports the current ruble exchange rate," said ING analyst Tatyana Orlova.

A source in the Central Bank confirmed that the trading band had been widened further. The Central Bank was forced to let the ruble depreciate in three 1 percent steps against the euro/dollar basket last month.

The Central Bank said it had spent $57.5 billion in September through October to rebuff an attack on the ruble. Dealers said the regulator had sold about $10 billion this week but noted that the speculative pressure on the ruble was easing.

"People are getting used to the gradual devaluation. Market panic and unhealthy demand are receding. Today, it is not as interesting to buy dollars as it was when the basket was at 30.40," said OTP bank's trader Anton Murashov.

The ruble closed at 31.62 against the basket on Friday.

The Central Bank declined to comment on the latest move officially. Economists, meanwhile, are split over what the Central Bank should do.

Troika Dialog analyst Yevgeny Gavrilenkov said a large, one-time devaluation would be a useful step toward the ruble's float, proclaimed by the Central Bank as a medium-term target, and a that weaker currency would help industry. Others disagreed.

"We are skeptical about the possibility of bigger ruble devaluation, as it would fuel inflation and potentially lead to rising social tensions," said ING's Orlova.

Households closely watch the dollar exchange rate. With the Central Bank data showing an "unprecedented" $10.3 billion in net demand for foreign currency in October, confidence in the government's anti-crisis measures is at stake.

The government is also facing a problem channeling the money it pumps into the banking sector to enterprises, with spreads between official and market interest rates at over 10 full percentage points.

The Central Bank has accompanied some of its devaluation moves with rate hikes, gradually moving official interest rates in real terms out of the negative territory where they have been in recent years.

Some analysts also questioned the logic behind the Central Bank's move one day after the increase in reserves.

"The situation becomes more unclear. Certainly not an environment to attract foreign capital," said Ulrich Leuchtmann from Commerzbank.