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. Last Updated: 07/27/2016

Ruble Firms, Reprieving Central Bank

The ruble continued to recover Friday, rising nine points to 1,544 to the dollar as Central Bank Chairman Viktor Gerashchenko predicted the currency would stabilize.


The recovery of the ruble gives a temporary reprieve to the Central Bank, which had warned that it had spent about $1 billion this month, or almost one-quarter of its reserves, supporting the ruble and was running out of funds.


Meanwhile, politicians and economists have argued over whether the plunge in the ruble has reflected the political crisis or is a long-term adjustment to changes in the balance of trade.


In trading on the Moscow Interbank Currency Exchange, the demand for dollars collapsed after a week of record highs. When trade started at the Thursday's fixing, demand was only $67.1 million, not enough to meet the initial supply of $86.3 million.


Gerashchenko told Interfax that the Central Bank actually had to buy dollars to push demand up to the closing volume of $78.4 million and avoid an even sharper fall in the dollar.


Gerashchenko however appeared to indicate that despite the depletion of its reserves, the Central Bank still had a target rate in mind and would continue intervening in the market. He said, "The ruble must stabilize between 1,500 and 1,700 to the dollar so as to guarantee Russia's export needs."


The ruble crashed to a low of 1,607 to the dollar on Wednesday, down from 1,356 at the start of the week and 1,247 at the start of the year, after monetarist reformer Yegor Gaidar resigned as economics minister.


Dmitry Tulin, deputy chairman of the Central Bank, told Interfax that the fall was partly the result of politics and a rise in inflationary expectations but also reflected the fact that the ruble had held steady in the face of high inflation over 1993.


He said the ruble had risen three times while prices had risen 10 times. This rise in the real value of the ruble and the decline in the dollar made imports cheaper and exports unattractive.


He said Russia was now at a point where domestic prices for many export goods exceeded world prices, making export unprofitable. Similarly, imports had become cheaper, increasing the demand for dollars.


Outgoing Finance Minister Boris Fyodorov, in an interview with Interfax, denied accusations by economists, including Duma faction leader Grigory Yavlinsky, that the ruble exchange rate was artificially raised in 1993.


He said the government had deliberately limited its support of the ruble to ensure that exports were not damaged by an excessively exchange high rate.


He said that the timing of the latest ruble fall showed that the crash was largely in response to politics, not macroeconomics. "If Gaidar and Fyodorov were in their place, and Gerashchenko was not, the exchange rate would immediately drop to 1,300 to the dollar."


He said he would bet 100,000 rubles that in a week, the ruble would top 2,000 to the dollar.


Tulin said that the bank had neither the desire nor the power to maintain a target ruble rate since total volume in 1993 was $14.7 billion. Tulin said all the bank could do was smooth out fluctuations.