Ruble Plummets as Equilibrium Sought

DAVOS, Switzerland -- The Central Bank is trying to stay out of the market to allow the ruble to find an equilibrium level within its trading band against the basket, the Kremlin's top economic aide Arkady Dvorkovich said Thursday, as the currency slipped to a historic low.

"The Central Bank is trying to stay out of the forex market as much as possible to avoid artificial pressures and to allow supply to determine the market exchange rate within the band," Dvorkovich said Thursday.

The bank last week took advantage of corporate tax deadlines that stoked temporary demand for rubles to try to end 2 1/2 months of gradual devaluation, setting limits for the currency from 26 to 41 rubles to the euro/dollar basket.

But its slide has since resumed, and bankers say the Central Bank's resolve to stabilize the currency is likely to be tested.

"For now, everybody is playing to test the ... boundary of 41 rubles. The big question is whether or not it rests there," said Viktor Kholoshnoi, chief currency dealer at Gazprombank.

On Thursday, the ruble fell another 2.6 percent to 39.75 against the basket and 4.9 percent to 34.93 against the dollar. Dealers estimated that the Central Bank, which has used a third of its reserves defending the ruble, spent around $3 billion to $4 billion during the day on countering the decline.

The Central Bank has said it is prepared to defend the trading band's floor as long as the price for oil, Russia's main export commodity, does not fall to $30 a barrel. It said that if oil rises to $50, the ruble could strengthen.

Russia's Urals export blend of oil traded at $41.50 on Thursday.

The end of major corporate tax payments has freed up speculators to try to test the currency boundaries. High volumes in the Central Bank repo auctions suggested that banks were still holding on to their forex reserves.

Analysts are divided, with some, like BNP Paribas, saying the Central Bank will spend "an infinite amount of dollars" to defend the ruble while others, like Commerzbank, believe that the Central Bank's statements "lacked credibility."

"It is disappointing to see that the Central Bank has thus far been unwilling or unable to take sufficient steps to cut off the supply of liquidity to bolster the credibility of its new currency regime," said Rory MacFarquhar from Goldman Sachs.

The Central Bank, as well as traders, closely watch exchange rates priced in internationally traded nondeliverable forward contracts for the ruble, which for now show that devaluation expectations are receding.

"It looks like we are watching one of the last speculative attacks. Our opinion is based on a lower cost for the ruble position hedge through NDFs," Bank of Moscow's analysts said in a research note.