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. Last Updated: 07/27/2016

Business as Usual as Ruble Loses More Value




The ruble continued to plunge Thursday, as the official Central Bank rate lost 2.5 percent to hit 25.87 to the dollar, down from 25.22, but there was little sense of panic on Moscow streets or on trading floors.


The Central Bank - after spending $57 million, according to Interfax, to drive the ruble back above 26 to the dollar in a morning session that saw $166.13 million worth of trades for today settlement - predicted the worst was over.


Even though the currency has lost 1.065 rubles per dollar, or about 4 percent of its value, over the past two days, Thursday's afternoon trades for tomorrow settlement seemed to indicate that the Central Bank was on the right track.


In a rare occurrence, the ruble actually moved back above the official rate in afternoon trade to close at 25.818 to the dollar. The official rate is set following the morning trading session.


Although there was increased action at exchange points around town, the people crowding exchange kiosks were mostly treating the ruble's slide as just part of another normal day in Russia.


"I don't know what will happen tomorrow and I had better change my rubles now," said Gennady, a 54-year-old Muscovite. "There is so much scandal around Russia now that I am afraid things will become worse."


Analysts also blamed the decline in the currency on the continuing corruption and money-laundering scandals dogging Russia, especially now that those revelations have raised the possibility that a $640 million IMF credit could be delayed. The recent political instability in Russia has also helped undermine confidence in the ruble.


Gennady was among four people lining up at one of the numerous kiosks near Belorussky Station that were selling dollars for 25.90 rubles each, some 10 kopeks to 40 kopeks lower than most.


A security guard at a different kiosk in the same area - which was selling dollars for 26.10 rubles - said that his kiosk was doing a normal trade. While 25.90 rubles a dollar was the lowest sell rate across town, most exchange points demanded at least 26 rubles per dollar, with some banks asking as high as 26.50.


Analysts said that there was nothing unusual or catastrophic in the dollar's rise against the ruble. "If the dollar just increases by 1 percent or even 4 percent, this is still not a four-fold jump like last year," said Alexei Trunyayev, fixed-income trader with Aton brokerage.


"Also, conditions now are different to last year - the regulating role of the Central Bank is greater now and it is not purely the market that rules the roost."


Experts said that the recent imbalance between Russian inflation - which is much higher than the U.S. inflation rate - and the stagnant exchange rate for the two nations' currencies had much to do with the harshness of this week's drop in the ruble.


In the second half of last month, with the ruble staying put against the dollar and Russian inflation outpacing America's, the ruble was in fact becoming worryingly overvalued against the greenback, said Sergei Babayan, head of the fixed-income department at Troika Dialog brokerage.


"The pace of the growth of inflation is bigger than the growth of the dollar, and that leads to an imbalance," Babayan said. "That means that there is nothing too horrible about the dollar starting to grow - it probably started to grow even later than it should have."


The Central Bank spent heavily late last month to prop the ruble up, apparently determined to fulfill Central Bank chairman Viktor Gerashchenko's pledge that the currency would not drop below 25 to the dollar until the summer was over. Summer ended Wednesday, and the ruble promptly broke that barrier.....