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. Last Updated: 07/27/2016

Analysts: Ruble Peg Aids Shippers, Yeltsin

The Central Bank's decision to launch a new, relaxed ruble corridor gives exporters part of the devaluation they wanted without threatening the currency's long-term stability, economic analysts said Monday


They said it also seemed calculated to give President Boris Yeltsin another boost in his re-election bid. "Exporters are some major supporters of Yeltsin and his reforms, and their backing is crucial in the elections," said Vladimir Mau, deputy director of the Institute of Economy in Transition.


The Central Bank announced a decision Thursday to extend the ruble corridor when it expires at the end of June, keeping it within a 600-point trading range against the dollar.


But the limit will be shifted down to a band of 5,000 to 5,600 rubles against the dollar instead of 4,550 to 5,150, the corridor in effect since January. The new corridor will remain in effect until Dec. 31.


Russian exporters have been pressing the government for a scheme that would allow ruble devaluation as prices went up. A weaker ruble helps exporters because it makes prices of their goods more competitive abroad.


The Central Bank resisted pressure for a major devaluation -- many exporters said they figured a rate of 10,000 to the dollar was about right -- to maintain the ruble's stability.


The bank's chairman, Sergei Dubinin, said devaluation would crawl behind the monthly inflation rate, which the Russian government has pledged to drive down to an average of 1 percent a month by the end of the year.


He also displayed a table of this so-called crawling peg, taking the ruble down 3 points a day against the dollar until the end of the year.


Analysts generally praised the handling of the decision by the government and the bank.


"What you want to make absolutely sure is that you're going to have credible policy, and in order to calm down the inflationary pressure from uncertainty, it has to be as transparent as possible," said Brigitte Granville, a senior research fellow at the Royal Institute for International Relations.


But Granville said the new ruble corridor could help exporters in the event of a victory by Yeltsin in the June elections. She said such a victory could increase confidence in the ruble, placing pressure on the currency to strengthen above the upper limit of 5,000 to the dollar set by the Central Bank. If that occurs, the new rule would restrict the appreciation, helping exporters, Granville said.


Vladimir Kashin, deputy director of the Expert Institute of the Russian Union of Industrialists and Entrepreneurs, said the new corridor was "good news for the exporters." He said however he did not believe the ruble would strengthen after the elections.


The Central Bank also plans to "set the ruble rate according to what the actual inflation figures are, practically on a daily basis," Dubinin said.


Mau said the Central Bank, with currency reserves at a record $13 billion, was likely to stick to its self-imposed commitments.


"The Central Bank has such a powerful control over the foreign exchange market that if the current [economic] policy stays in place, any departures from their projections are simply not possible," he said.


That the Central Bank chose to make public its exchange market strategy by publishing a special table meant the bank "was so sure of its authority that it could now unveil the rules of the game," said Alexander Osmolovsky, head of the hard currency department at Alfa Bank.


"This means there's a growing trust between the banking community and the Central Bank," he said.


In a meeting Sunday with business leaders in the central Siberian city of Omsk, President Boris Yeltsin praised the new ruble corridor and said the government "will be forcing the dollar out of our economy," Interfax reported.


Viktor Levashov, acting director of the Institute for Social and Political Studies, called it a "routine statement" and said that "as a president he has to reiterate the need to strengthen the ruble."


"Most likely, he's talking about forcing dollars out of the population to make people invest into the economy," he said.


Russians have some of the world's largest holders of cash dollars -- currently estimated at $20 billion to $30 billion.