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. Last Updated: 07/27/2016

As Ruble Nears 17, Bank Says Only 13




The Central Bank peddled its official rate of 13.46 rubles per dollar to the markets Thursday, but exchange booths on the street were having none of it as the Russian currency took one of its biggest beatings ever.


Officially, the ruble fell just 5 percent, according to a rate set during the first 30 minutes of trade at the Moscow Interbank Currency Exchange.


But the markets, driven by fears of political and economic chaos, didn't stop there, averaging 16.78 to the dollar by their 5:30 p.m. close -- 20 percent above the Central Bank's rate.


If there was any consolation it was that only $32.8 million changed hands, far fewer than the billions seen on a healthy day.


Deals inked Thursday but closing Friday showed the ruble falling further to an average trade of 17.39 to the dollar. That marks a stunning decline from the 6.4 rate the ruble held before the Central Bank's Aug. 17 announcement that it would no longer defend the currency.


"I think the point is that for a long time the exchange rate was artificially low because the Central Bank held it there," said a Russian currency trader who asked not to be identified. "When the Central Bank freed the market, the rate went to its rightful rate."


Thursday marked the first day an official MICEX rate, or fix, was determined through electronic trade. The Central Bank suspended trading on the main MICEX auction floor last week after acknowledging it was the only buyer of rubles on the market.


Currency trade on the streets of Moscow seemed to anticipate MICEX's forecasts, with some exchange booths demanding up to 17.4 rubles to the dollar.


Fears of further devaluation are keeping banks' and consumers' fists wrapped tightly around dollars. President Boris Yeltsin's battle with the State Duma over the confirmation of acting Prime Minister Viktor Chernomyrdin has created the perception that no one is at the helm of the economy.


Chernomyrdin promised in a weekend television interview to reveal his economic strategy "soon," but few details have been disclosed.


Domingo Cavallo, the Argentinian currency expert invited to assess Russia's financial woes, urged the nation's leaders to draft a financial plan immediately.


"But what Russia must do is find the way for politicians to support a strong economic stabilization process -- and do it now," he was quoted as saying by Reuters, citing the Argentinian daily La Nacion. "The question is


whether the solutions appear before or after there is an explosion of hyperinflation."


In another sign of low ruble confidence, banks on Thursday boycotted the Central Bank's second attempt in as many days to sell 1 billion rubles worth of two-week discount bonds, an instrument the government created in an attempt to coax banks to invest in something other than dollars.


But with the dollar gaining new ground against the ruble each day, the U.S. currency still looks like the best investment. Denis Rodionov, a fixed-income analyst with Brunswick Warburg, estimates the dollar has grown 10 percent against the ruble each day since devaluation began, which would translate into an annualized return of 1,000 percent.


"The Central Bank will never pay that kind of return on bonds," Rodionov said. Indeed, the bank had been offering yields of 60 percent to 70 percent on the bonds, Interfax reported.


"Increasing the rates would serve only to strengthen negative trends on the Russian financial market," Konstantin Korishchenko, head of the Central Bank's open securities department, was quoted by Interfax as saying. "Traders must cool off and realize they cannot live on speculative foreign exchange deals alone."


Russia's chaos continued to sack currencies worldwide and took a particularly steep toll on the Belarussian ruble, which plummeted 30 percent against the U.S. dollar on Thursday to a total fall of nearly 70 percent over the past two weeks.


"[Belarussian] rubles are melting in peoples' hands. Everyone is trying to convert them at any price," one local banker was quoted by Reuters as saying.


As the Kremlin focuses full attention on its political wrangling with parliament, many fear it is losing ground in tax collection, which appears to be the only source of budget funding available as domestic and foreign credit lines dry up.


Andrei Illarionov, the outspoken director of the Institute for Economic Analysis, said Thursday he believes monthly budget revenue is less than $1.5 billion now and will drop to $1 billion toward the end of the year.


This will not be sufficient to cover even the $6 billion in foreign debt Russia must pay off by the end of the year, let alone what it owes in wages, pensions and other expenses, Interfax reported Illarionov as saying.


Many market analysts assume Russia has fallen far behind the fiscal targets set for it by the International Monetary Fund and other lenders when they pledged a $17.1 billion bailout package in June.


The IMF last week threatened to delay the second $4.2 billion tranche of the package, due to be paid late this month, if Russia didn't stick to the terms of the deal and proceed with reforms. Chernomyrdin said Thursday that Russia would receive the funds only if it succeeds in forming a new government.


The money could be used to repay domestic Treasury bills, or GKOs, the acting prime minister said, without specifying what type of GKO would be redeemed. GKOs held by Russian banks and foreign investors were restructured into longer-term bills worth only one-third their original value, while Russian citizens still hold their original GKOs.


"If we receive the next tranche from the IMF, then we could begin redeeming GKOs," Itar-Tass quoted Chernomyrdin as saying.