Central Bank Sets Bottom For Ruble

The Central Bank sought to put a limit on the ruble's gradual slide on Thursday, setting its floor 10 percent below current levels after the currency stabilized in recent sessions.

The Central Bank said it would stop widening the ruble trading corridor from Friday -- a process that cut nearly a fifth off the currency's value since November -- and would switch to a managed float.

The statement ended a two-month long period of creeping devaluation as the government strove to bring the currency in line with weak oil prices and an economy that it expects to slip into its first recession in a decade this year.

"From Jan. 23, 2009, the upper boundary of the technical corridor will be set at 41 rubles" versus a euro/dollar basket, the Central Bank said in a statement.

"The stated value is defined taking into account the remaining risks of worsening terms of trade for the Russian Federation, but the Bank of Russia sees these risks as moderate and does not plan to change this boundary in the coming months," it said.

The move comes after Russian officials noted that the depreciation could be coming to an end and after the ruble began to show its first signs of resilience. On Tuesday, it posted its biggest-ever rally versus the basket, and on Thursday it closed at 37.03 -- some way off the Central Bank's weakest boundary.

"It is a sensible move. They had been very keen to avoid a sudden devaluation for political reasons, so we have this instead," said Nigel Rendell, emerging foreign exchange strategist at Royal Bank of Canada in London.

"A lot of people have been short on the ruble for a long time, and they might decide the game is up and close their positions so there might be some short-term support," he said. "But the longer-term trend is clearly down unless we get some kind of inversion in the oil price."

The Central Bank argues that the softly-softly approach to devaluation has avoided panic among a population that remembers the ruble losing more than two-thirds of its value during the 1998 financial crisis.

Prime Minister Vladimir Putin this week ordered that the 2009 budget be reworked at an average price for key export oil of $41, less than half the originally forecast $95.

That would mean an economic contraction of 0.2 percent this year, according to updated Economy Ministry forecasts.

However, falling imports -- as the domestic economy slows -- will likely keep the trade balance in surplus, giving the ruble some support.

Many Kremlin watchers expect Putin to seek a return to his old job as president in 2012, though he himself has not declared an interest.

Analysts say his chances of doing that hinge on the handling of the current financial crisis, with the ruble one key factor. But the announcement of a managed float is unlikely to silence the analysts who say controlling the ruble's depreciation -- which has cost a third of Russia's reserves since August -- is too expensive, and a one-off large move or even a free float are needed.

Russia's reserves fell a record $30.3 billion in the week to Jan. 16, data on Thursday showed, slipping below the $400 billion mark for the first time since May 2007.