Third Ruble Fall Sparks Investors' Fears

The ruble plunged 140 points against the U.S. dollar Wednesday in its third major drop in the past two weeks, renewing concerns that the Central Bank had lost control of the Russian currency.

The ruble closed at an all-time low of 2,808 to the dollar on the Moscow Interbank Currency Exchange, a drop of more than 5 percent.

The ruble has lost nearly 35 percent of its value against the dollar over the past two months as the Central Bank has curtailed its intervention on the market.

"The Central Bank just doesn't have enough money to pump into saving the ruble," said Igor Doronin, currency expert at the exchange. "The ruble is eventually going to have to stand or fall on its own."

At the end of last month, the Central Bank's hard currency reserves stood at about $5 billion, down from $7 billion in July.

Central Bank Chairman Viktor Gerashchenko said Wednesday that the bank is not particularly worried about the ruble's decline, and has no intention of raising interest rates to support the currency.

The Central Bank's annual refinancing rate now stands at 130 percent.

Speaking during the annual meeting of the World Bank and the International Monetary Fund in Madrid, Gerashchenko told reporters the ruble was "finding its level," according to Reuters.

"We have no grounds for raising rates and rates will go in accordance with our agreement with the IMF," he said. "We know that increasing the interest rate will definitely increase inflation because it is included in the cost of production."

Investors in Russia's burgeoning equities market, however, expressed concern over the ruble's continuing fall, which has cut heavily into the dollar value of Russian shares.

"Any way you look at this, it's not very good," said one Western fund manager. "Investors in this market are looking for a quick and easy return. When the ruble starts depreciating, it raises questions about not only what type of return you're going to get, but whether you can actually lose money."

Dealers predicted that the ruble would bounce back Thursday, as it has done after every sharp fall in the past month.

As of Wednesday evening, the ruble had already risen to 2,760 per dollar in private interbank trading, according to Stanislav Chernyakov, a hard currency dealer at Tokobank.

"Tomorrow we expect the ruble to rise about 30 points," he said.

The ruble's drop Wednesday follows optimistic announcements Tuesday by Western and Russian economists that the Russian economy was showing signs of stabilization.

The Central Bank, however, drew harsh criticism for allowing sharp fluctuations in the ruble-dollar rate. Sergei Pavlenko, head of the governmental Center for Economic Reform, said that the ruble's fall has made the hard currency market too profitable, attracting a flood of speculative money that might otherwise have gone to industrial investment.

Economists and investors were stuck for solutions on how to stop the falling ruble. Traditional Western methods, such as tightening the supply of money and raising interest rates, seem largely ineffective in Russia's growing market.

"You can keep saying tighten your belt, tighten your belt," said one Western economist. "But how tight can a belt get?"