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. Last Updated: 07/27/2016

Ruble hits low of 248 to dollar

The ruble fell further on Thursday, reaching a new record low of 248 to the dollar with markets fearing that government policy is leading to hyperinflation.

Ominously, the State Statistics Committee reported that the period of relative price stability in July and August, with prices rising 1 to 2 percent on average, has come to an end, Izvestia reported. Prices at city markets are now rising on average by 3 to 4 percent a week.

On an annualized basis, the rate equates to an inflation rate of 600 percent.

The 7-ruble slide comes after Tuesday's drastic fall to 241 to the dollar from 205. 5.

Alexei Osennik, deputy director of the Moscow Interbank Currency Exchange, said the fall was directly linked to the sharp increase in credit emissions to prop up Russian industry.

"If in June and August, the market could offer 15 to 18 billion rubles a week to buy dollars, this week it has 30 billion", he said.

Yevgeny Yasin, economist for the influential Industrialist's Union, wrote Thursday in Rossiskiye Vesti that credit emissions in September were 10 times higher than in March.

"Before us is a classic example of a regressive inflationary spiral", he said. "The danger is huge".

The volume of dollars traded on the Moscow Interbank Currency Exchange also reached a new record this week. Over $131 million changed hands, a huge increase on the previous record of $100 million two weeks ago.

But the head of the Central Bank's hard-currency section, Alexander Potyonkhin, contended that pessimistic predictions about the future of the ruble were unfounded. He said that the government was looking at ways of stabilizing the economy.

"The Central Bank does not hide the fact that we are actively supporting the ruble on the exchange", he said. "But we take courage from that fact that even in this crisis period exporters continue to sell two-thirds of the total volume of dollars for rubles".

The main supply of foreign currency to the market results from a law requiring exporters to sell half of their foreign earnings back into rubles. The Central Bank buys 30 percent directly at the market rate and 20 percent is bought by commercial banks through the currency auction.

In theory, access to the hard-currency market for big purchases is restricted.

Only joint ventures with 30-percent foreign equity, about 30, 000 licensed importers and Russian companies with properly approved orders to buy goods and services can buy hard currency.

But many Russian commercial banks are now finding ways to gain access to the hard-currency market to ship capital overseas and find a safe haven against inflation.

For example, two companies now advertise in Moscow papers offering to buy shares in overseas companies. When contacted by The Moscow Times, one firm described the process of buying hard currency for such capital transfers as "a trade secret".

A Western banker operating on the Russian hard-currency market said that some Russian commercial banks were now ignoring rules on access to the hard-currency market.

He said the Russian Central Bank left it up to commercial banks to ensure that hard-currency purchasers had appropriate authorization because it lacked the resources to police the laws.

This results in a huge demand for dollars from companies that technically are not allowed to trade through the exchange, further driving down the price of the ruble.