Ruble Steady as Putin Backs FX Policy Shift

ReutersA woman looking at a currency exchange board with words instead of the dollar/euro rate Friday in central Moscow.��
The ruble held firm on Friday after the Central Bank gambled on setting a floor 10 percent below current levels in a bid to end a slide that has knocked one-fifth off its value.

A series of mini-devaluations since November cost Russia $200 billion, or one-third of its reserves, as it adjusted to weaker world oil prices and a slowing economy.

Keeping the slide gradual has avoided public panic in Russia, where people still remember the ruble's 70 percent collapse in 1998.

Prime Minister Vladimir Putin has vowed that there will be no repeat of 1998, and the latest polls show that his ratings remain high in a financial crisis stretching back to September.

The ruble closed at 37.26 to the basket, made of 55 cents and 45 euro cents, little changed from the previous session and well within the 26 to 41 corridor outlined by Central Bank Chairman Sergei Ignatyev late Thursday.

Putin's spokesman said the prime minister approved of the policy shift. "The opinion expressed by Sergei Ignatyev is shared in the government," Dmitry Peskov said.

Russian banks and firms continued to switch their foreign currency holdings into rubles to make corporate tax payments, and there were no signs of panic or discontent in the streets, bank offices or exchange booths.

"The painful period of massive reserve losses is over, at long last," said Rory Macfarquhar, analyst at Goldman Sachs, predicting that bond and credit markets, squashed by ruble devaluation, would also soon come back to life.

Finance Minister Alexei Kudrin earlier said that once the devaluation was over, Russia would take measures to bring back foreign investors who dumped Russian stocks in the aftermath of the August war in Georgia and are now sitting in cash.

"We will not make any dramatic moves based on the Central Bank's statement, but we do have more confidence in the Russian Central Bank than in many other central banks," said Carl Meurling, CEO of hedge fund Emeralt Investments.

The bank's announcement came after new data showed a record $30 billion fall in the country's forex reserves, the world's third-largest, prompting Fitch to warn Russia that a downgrade is imminent if the hemorrhaging continues.

The Central Bank said it would continue currency interventions but would also try to steer the market through its interest rate policy as well as the amount of liquidity it provides to the banking sector.

Ignatyev declined to disclose the intervention mechanism in more detail. Earlier, the Central Bank had "planned" currency purchases to replenish rainy-day oil funds and ad hoc interventions to steer the ruble.

Ignatyev said at a news conference that the Central Bank was under pressure to choose a different currency policy path but declined to say where the pressure was coming from. Both Putin and Medvedev have recently called their staff for unity.

Medvedev previously said the ruble's rate of 31 to 32 to the dollar was what the Russian people can painlessly tolerate. The Central Bank's new upper boundary sees the ruble at 36 to the dollar based on the current dollar/euro exchange rate.

Putin has never put any numbers to the foreign exchange policy publicly. The Economic Development Ministry's forecast sees the ruble at an average of 35.1 to the dollar in 2009, very close to 36, which corresponds to the upper basket boundary at the current dollar/euro rate.

The announcement also came after hours of intense market speculation that the Central Bank would announce a free float of the ruble. Many analysts were disappointed that it did not.

"We would like to see a faster move towards a freely floating ruble ... the market will soon try to test the new upper boundary," said Lars Rasmussen, from Danske Bank.

On Friday, liquidity remained tight with the Central Bank injecting 602 billion rubles through one-day repo auctions. Money-market interest rates stood well above 20 percent .