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. Last Updated: 07/27/2016

Ruble Up Near 16, May Well Fall Again

An increased demand for the ruble reversed the beleaguered currency's three-week slide Wednesday, boosting the Central Bank's Thursday rate 32 percent to 15.77 to the dollar.

Currency traders offered different explanations for the recovery. Some said banks needed to sell dollars for rubles to pay off depositors while others speculated that state gas monopoly Gazprom was converting hard currency into rubles to pay its overdue taxes.

Almost all analysts saw the ruble's rebound as temporary.

Kremlin officials, meanwhile, said the rise was proof that the currency's real value is stronger than Wednesday's official rate of 20.825 rubles to the U.S. dollar.

Such a high rate reflected "a considerable speculative component" and general nervousness about the financial crisis, Interfax quoted government spokesman Igor Shabdurasulov as saying.

He added that the ruble's rise should cause a drop in consumer prices, which leapt 15 percent in August and 35 percent in the first week of September, the State Statistics Committee reported. The tax police have been auditing retailers suspected of price gouging.

Consumers scrambling to meet the new prices lined up at Moscow's exchange bureaus Wednesday, pushing rates down to about 16 rubles to the dollar at some locations.

Currency traders said it was just a matter of time before the ruble weakens again.

"The difficult political and economic times don't allow for a strengthening of the ruble," said one Russian trader who asked not to be identified. "Most banks favor staying in dollars in the current situation."

Apparently unimpressed by the ruble's rise, Communist leaders called for the currency to be fixed at 7 to the dollar and said they were ready to take responsibility for the economy.

"We shall restore order in the country, we shall begin a fierce struggle with organized crime and corruption in the state apparatus," the party said in a statement released to the media.

The Communists said they would re-nationalize "vital strategic sectors" and create a state monopoly to oversee the export of raw materials including energy resources and the import of alcohol and tobacco.

The Communists' plan followed a series of economic proposals emanating from all corners of the Kremlin.

One drafted by a commission led by acting Deputy Prime Minister Boris Fyodorov and published by Itar-Tass on Tuesday advocates borrowing funds from abroad to help establish a currency board to stabilize the ruble.

It also calls for significant tax breaks to industry, including the reduction of the profit tax to 20 percent from 35 percent, and tighter regulation of the banking sector.

One analyst said the plan has likely been endorsed by possible lenders including the Group of Seven industrialized nations or the International Monetary Fund.

"I think this plan has already been discussed with the G7, perhaps over the weekend," said Alexei Zabotkine, a fixed-income analyst at United Financial Group. "I don't think the government would go to the [State] Duma with a draft mentioning international lenders and not have anything promised by the G7."

Acquiring the hard currency reserves would justify printing new money to pay off wage and pension arrears and payments on external debt, the Fyodorov plan states.

Starting Dec. 1, the ruble would be fixed to a basket of currencies for a period of no less than five years and the money supply limited to the level of gold and hard currency reserves.

The plan appears to strip the Central Bank of significant powers by transferring control of the money supply to a currency board and by proposing the creation of two separate entities to restructure and regulate the banking sector beginning Jan. 1.

Before his Tuesday resignation, former Central Bank Chairman Sergei Dubinin was widely criticized for failing to crack down on troubled banks.

Some of the proposals, which could be submitted to the Duma in a draft law, are likely to meet objection in the Communist-dominated lower house of parliament. The Fyodorov plan would ban a federal budget deficit from 2000 to 2004 and would prohibit the indexation of public sector wages until 2000.

Both measures would put a crimp in the Communists' economic wish list, which includes free education and medical care, affordable housing and stronger social security, and the granting of cheap credits to industry.

The whirlwind of proposals followed weeks of silence from government leaders on how to right the economy. Additional measures published Wednesday by the RIA news agency and attributed to the Kremlin appeared to differ slightly from the Fyodorov plan.

Those proposals played a bit more heavily to the populist Duma, allowing the indexation of minimum wages and pensions, "support" to enterprises, guarantees for household bank deposits and the provision of food supplies to the armed forces and security services.