Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

State Warns of Huge Ruble Dive




The Central Bank, accused by some traders of manufacturing the ruble's recent gains on money markets, predicted Thursday that the currency could fall as low as 30 to the dollar if steps are not taken in its defense.


The ruble's official Friday exchange rate firmed to 15.6 rubles to the dollar, continuing a climb that saw it rise Thursday to 15.83 per dollar from 16.21 on Wednesday.


Analysts said the Central Bank has had a major influence on the ruble rate since it barred 15 large banks earlier this week from trading on the Moscow Interbank Currency Exchange, or MICEX.


Official justifications for the ban were that these banks had not participated in a mutual debt clearance operation conducted by the Central Bank last Friday. But analysts said the more likely purpose was to restrict rubles and prop up the currency.


"Most key players have been barred from trading, the ruble liquidity is locked up in the banks," said Alexei Zabotkin, a fixed income analyst at United Financial Group. "In a narrow market, it is much easier for the Central Bank to prop up the ruble."


The decision was a nonmarket and purely administrative measure, Zabotkin added.


Eight of the 15 banks were allowed to resume MICEX trading Wednesday, but the remaining seven left out of the market were likely the biggest operators, Zabotkin said.


An added factor helping the ruble is Central Bank pressure on exporters to boost the amount of hard-currency earnings sold on MICEX.


Currently, exporters must exchange 50 percent of these earnings for rubles. But Prime Minister Yevgeny Primakov said Thursday that the government will force exporters to convert more hard currency into rubles, Itar-Tass reported.


The government had earlier said it was looking to force exporters to sell an extra 25 percent of their earnings to the Central Bank rather than on the exchange.


Should the measure be enforced, analysts said the odds are even on whether the dollars will be converted at a market rate or at a special rate set by the Central Bank.


Forcing exporters to exchange dollars at a fixed rate could damage exporting businesses planning hard currency investment, such as purchasing foreign-made equipment, since they would have to convert the rubles back into dollars at a less favorable market rate.


The Central Bank on Wednesday threatened fines of 100 to 200 percent of the value of exported goods for any firm that does not deposit the required dollars on account to be converted into rubles.


In yet another campaign to defend the ruble, the Central Bank proposed Thursday that major banks on the foreign exchange market create a pool of hard currency for supporting the ruble, according to Interfax.


The proposal was submitted to Thursday's government meeting for consideration, the agency reported, adding that those banks that cooperate will be paid back with Central Bank loans.


Analysts were skeptical about the initiative.


"It is unlikely that the bank can organize a pool and oblige its members to take part in the interventions," said Roman Serov, an expert with ABN Amro. "Any bank cares more about its own salvation more than that of the economy, which has staggered and will hardly be the same again."