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. Last Updated: 07/27/2016

Central Bank Idle as Ruble Slumps

The ruble on Monday dropped 19 kopeks to 26.95 to the dollar, with the Central Bank watching the slump from the sidelines.

However, traders said the end-of-year drop was unlikely to presage any major fall in the currency's value - it could even open the door to greater stability in January when the market reopens after the holidays.

"It could smoothen fluctuations at the beginning of the next month," said Konstantin Svyatny, head of domestic debt department with Impexbank.

Russia's foreign exchange hibernation period opened at the end of last week when most bankers, including top management, left Moscow for the holidays.

Dollar sales by exporters forced to repatriate earnings lost steam last week, and major pending orders were also carried out last week.

"Most contracts were executed in advance to avoid any possible Y2K complications," Svyatny said.

Rates around town at exchange points edged up to close to the 27 mark.

Most banks have built long dollar positions on eve of the New Year, so there were not many rubles left to make settlements.

Logically, this should lead to a rebound Tuesday, but traders said liquidity was too low as to leave room for market manipulation.

"I cannot predict what the Central Bank will do in the last 10 minutes of trading Tuesday," said Alexandr Akhmedov, senior trader with Probusinessbank.

The ruble rate set in trading Tuesday will remain the official exchange rate until Jan. 5 next year when the markets reopen after the holidays.

There will be no afternoon session Tuesday so traders expect very little activity before year's end.

Central Bank head Viktor Gerashchenko has gone on record as saying that the exchange rate will not fall below 27 rubles to the dollar before 1999 ends.

"The markets take guidance from such statements," Akhmedov said. "It is like introducing a psychological currency corridor."

Akhmedov predicted that the market will remain in a lethargic mood in January, and that the exchange rate will average 27.5 rubles per dollar next month.

The most pessimistic forecasts circulating see the currency falling to 29 rubles per month in January.

"Many traders say the ruble will be lower," Svyatny said. "But this could also mean that the market is already oversold and that we are at the bottom."

Ruble-denominated OFZs were hurt by the ruble's decline. Prices fell two to three percentage points and yields on issue maturing in 2002 again topped 80 percent. Yields on shorter issues hovered close to 70 percent.