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. Last Updated: 07/27/2016

Ruble: 3,000 And Still Falling

The ruble crashed through the 3,000-per-dollar level Monday, showing signs of an out-of-control fall that economists say could derail Russia's fragile economic stabilization.


The ruble plunged 6.4 percent against the dollar on the Moscow Interbank Currency Exchange on Monday, closing 185 points down at 3,081 per dollar. Since Sept. 1, the Russian currency has lost 40 percent of its value against the dollar.


There was no sign that the plummeting of the ruble would end soon. In private trading late Monday the ruble traded at 3,200 to the dollar, indicating that the currency was due for a further battering Tuesday on the official market.


Dealers disputed government assurances that only speculative buying is behind the ruble's rapid devaluation, suggesting instead that the Central Bank has been fueling panic by buying dollars to speed the fall.


"No one knows when the ruble will stop falling, because the Central Bank -- a major player on the market -- seems to be on the dollar's side," said Maxim Stoklitsky, a dealer with Most-Bank. "It even seems to be a premeditated action by the Central Bank."


Stoklitsky and other dealers said the Central Bank, which has spent billions of dollars this year in support of the ruble, was most likely allowing the decline to make Russian exports more competitive and to cut the budget deficit.


A weaker ruble increases tax revenues while making it less expensive for the Central Bank to pay government debts by converting hard currency reserves.


The uncertainty surrounding the ruble's fall through the 3,000-mark contrasts sharply with the mood in July, when the Russian currency passed the psychologically important barrier of 2,000 per dollar.


At the time, the economy appeared to be stabilizing, the Central Bank had eased the ruble into a smooth devaluation, monthly inflation had fallen to under 5 percent and businesses were showing their confidence in the currency by signing long-term ruble contracts.


But while the ruble took a full 13 months to fall from 1,000 to 2,000 per dollar, it reached 3,000 in a mere three months. The accelerated fall cuts heavily into foreign investors' ruble assets and profits on Russia's young ruble-based securities markets, while the currency's volatility makes a crapshoot of the best-laid business plans.


"The latest ruble crisis could scare away any investor," said Mikhail Smirnov, an analyst with Inkombank. "Who wants to work in a country where the national currency can fall several percent in a day?"


Economists worry that the ruble's fall threatens the course of Russia's reforms, saying that the government, facing political pressure and unable to raise money by issuing securities, might be forced to rekindle inflation by loosening its credit policy. Last week, the government promised nearly 1 trillion rubles in credits to the army, while monthly inflation has already risen to 7.7 percent in September from a low of 4 percent in August.


The rush on dollars, which have become the country's most lucrative investment, has also drawn money away from ruble-based investments such as treasury bills, which, economists say, could eventually force the government to pay its bills with inflationary Central Bank credits.


Neither economists nor dealers would venture a guess as to when the ruble's tumble would end.


The drop of the ruble to 3,200 in private deals after the Moscow Interbank Currency Exchange closed Monday was "very unusual and a bit threatening," Stoklitsky said, explaining that dollars are usually slightly cheaper in private trade following major drops on the official exchange.


"Given the interbank rates, the ruble will fall further," said Rogachyov. "I thought 3,200 would be the new level for the ruble, but we already passed it on the interbank market and hardly noticed it."