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. Last Updated: 07/27/2016

Ruble Drops To All-Time Low of 3,947

The ruble fell to an all-time low of 3,947 to the dollar on the Moscow Interbank Currency Exchange on Friday, pushed down by fears that Russia's military campaign in breakaway Chechnya will drive inflation up.

The currency's previous record low was 3,926 rubles per dollar, reached on Oct. 11, often called "Black Tuesday."

The ruble initially recovered sharply from Black Tuesday, but it has been declining steadily all year, and dealers said the slide to new lows was not a surprise.

"The ruble passed its historic low level in a rather dull way, depressed by political uncertainty and inflation expectations," said Pavel Patyako of Rossiisky Kredit Bank.

"The ruble is slowly succumbing to rising inflation. No Central Bank measures can really stop the decline," said VITTA Bank dealer Leonid Frumkin.

Monthly inflation rose to 16.4 percent in December, from an average 6.5 percent in the second and third quarters.

The Central Bank has used an arsenal of measures to defend the ruble. These have included raising interest rates, selling dollars on the currency exchange and cutting banks' open currency positions -- reducing the dollars available for banks to use for speculation.

But dealers said the measures were not strong enough to keep the ruble from falling.

"In the end Russia will have to adopt a weak 1995 budget and take Chechen expenses into account," said a trader with a major bank.

"This will bring the ruble down seriously."

But Patyako said economic reality had not affected the ruble yet.

"What we see now is 70 to 80 percent political fallout from the Chechnya war, plus traditional January inflation and expectations of devaluation. The money-printing machine will only hit the market in a month or so," he said.

Dealers said another sign of inflation expectations were ruble interest rates of around 200 percent for overnight credits.

But even these could not help the ruble.