Analysts: Central Bank Drove Ruble Past 4,000

The ruble slipped past the 4,000 to the dollar mark Thursday to a record low of 4,004, but unlike previous psychological landmarks which caused concern, analysts said the drop was engineered by Central Bank policy to reduce the currency's exchange rate.

The ruble, which lost 16 points from its 3,988 closing Wednesday, has lost more than 12 percent of its value in January so far, under pressure from inflationary expectations, unease over privatization policy and the costs of the war in Chechnya.

But analysts said the Central Bank has been deliberately easing the ruble downward in a bid to keep pace with the rate of inflation, which has reached 10.4 percent in the first 17 days of 1995 alone.

"The Central Bank doesn't want the exchange rate to diverge too much from the rate of inflation," said Igor Doronin, currency analyst at the Moscow Interbank Currency Exchange, or MICEX, Russia's biggest money market.

The government has to keep the ruble at least level with the rate of inflation to prevent the real cost of state expenditure from increasing.

This has been particularly important in January because of the costs of war in Chechnya.

But while analysts predict a stable decline in line with inflation in the short-term, some say a sharp devaluation could occur later in the year when the Finance Ministry has to pay out the high income on T-bills issued this month.

Analysts also noted that failure to secure international loans for Russia's budget this year, particularly a $6.4 billion standby loan currently being negotiated with the International Monetary Fund, would undoubtedly send the ruble into a nosedive.

Doronin and other analysts said the Central Bank has been buying dollars to lower the ruble's rate.

Dealers said the bank placed orders for as much $150 million Thursday, the lion's share of $229.7 million in orders which outstripped the $202.8 million initially put up for auction.

Central Bank officials could not be reached Thursday but generally do not give information on currency trading activities.

Analysts say, however, that the Central Bank has often used intermediaries to purchase hard currency on its behalf.

Most of the dollars on sale this week have come from commercial banks that are having to sell their dollars to resolve liquidity problems caused by tighter Central Bank regulations and extensive investment in lucrative government treasury bills, dealers and analysts said.

A series of measures taken by the Central Bank over the last month have been aimed at making the hard-currency market less attractive.

The Central Bank has raised its refinancing rate -- at which it lends to other banks -- to 200 percent. It has also ordered commercial banks to deposit 2 percent of their clients' hard-currency accounts with the bank beginning Feb. 1, and has restricted the amount of foreign currency they are able to buy.

Added to this, the high incomes offered by state treasury bills of over 300 percent this month have sucked more than 2 trillion rubles ($500 million) into state coffers since the start of 1995.

But dealers say dissatisfaction with the yield offered by the government at its latest T-bill auction Wednesday -- where it placed only 28 percent of a three-month issue at an average of 299 percent -- plus new rubles earned through obligatory dollar sales is threatening to divert finances back toward foreign exchange trading,

"More rubles will appear on the market demanding hard currency, because banks have a surplus of rubles after having to sell hard currency according to the MICEX rules and have turned away from T-bills at auction because the yield was so low," said a dealer with Menatep Bank, who declined to be identified.

Nevertheless, analysts say the Central Bank has accumulated substantial reserves of as much as $6 billion.

With these reserves it can use to regulate the exchange rate and prevent sudden collapses in its value like the Oct. 11 "Black Tuesday" crash.

"We're not going to see another 'Black Tuesday,'" said Stanislav Chernyakov, a dealer with Tokobank. "The ruble will continue to fall gradually."

"We're likely to see a period of relative stability over the next couple of months," said Thomas Reed, who is an analyst with the investment company AIOC Finance.

Reed pointed to the lure of IMF aid as an incentive for maintaining a steady exchange rate.

"But then we could see a lower ruble," he said.