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. Last Updated: 07/27/2016

Ruble's Fall Blamed on Dollar Demand

The Russian ruble's erratic behavior last month, with the exchange rate depreciating faster than it has since the corridor was introduced last year, was caused by increased demand for cash dollars, experts and economists said Monday.


Central Bank Chairman Sergei Dubinin confirmed last week that the bank made a "significant intervention" by selling a total of $1.6 billion on the foreign exchange market in August to prevent the ruble from sliding further.


Igor Doronin, an analyst at the Moscow Interbank Currency Exchange, or MICEX, said the reason for the recent pressure on the ruble was a surge in demand for cash dollars.


An August presidential decree -- since rescinded -- that would have imposed taxes on individuals' bank accounts "sent people trembling" and could have provoked some depositors to convert their ruble savings into hard currency, he said.


Another possible cause, Doronin said, was reduced confidence in the banking system, coupled with lower interest rates offered by banks, which encouraged the population to convert ruble-denominated bank deposits into hard currency.


He said the ruble depreciated 2.7 percent in August, the highest since the introduction of the corridor last year, while the volume of private deposits in commercial banks shrank by 11 percent over the last month.


"This is not the ups and downs of the banks' trade, but there was a lot of pressure on the ruble because of demand for cash currency," Doronin said.


He said banks' trading was "very quiet," with MICEX turnover last month hitting its lowest level since May, when the Central Bank dropped the exchange's daily fixings as a source for the official ruble to dollar rate in favor of quotations from the interbank market.


But the Central Bank's interventions, primarily on the interbank market, marked a significant use of its hard-currency reserves, which stood at $13.2 billion in July, according to Renaissance Capital investment bank.


Dubinin, at a press conference, blamed the press and market participants for creating "constant prophecies of gloom and doom" that prompted individuals to move savings into dollars instead of placing their money in ruble instruments at considerable profit.


He also said the bank would seek to devalue the ruble in line with inflation over the remainder of the year.


But James Fenkner, head of research at CentreInvest Securities, said intervention by the Central Bank on the foreign exchange market last month was part of the government's strategy to push down yields on state securities, or GKOs.


"The Central Bank takes the side of [the Finance Ministry] in terms of reducing yields for Russian GKOs. The yields are very low now," he said.


Fenkner said the hedged dollar GKO yield, as calculated by CentreInvest Securities, was currently at a "phenomenally low" level of about 15 percent in dollar terms for the year.


"The dollar sales could have actually ended up in GKO purchases," he said.


?Economics Minister Yevgeny Yasin said over the weekend that the government is considering monetary reform, despite a statement by Dubinin last week that such a possibility "has not even been discussed."


Yasin said the government could issue a "hard" ruble that would be worth 10,000 of the present rubles, Segodnya reported. The minister did not say when a "hard ruble" might be introduced, but said that it could entirely replace the unit now in circulation within five years.