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. Last Updated: 07/27/2016

Ruble Extends Plunge to Hit 28.85




The ruble is now down 10 percent against the dollar this year after Wednesday's 41-kopek slide to another new record low of 28.85, traders said the Central Bank had moved to intervene and that the drop was bound to stop soon.


Despite repeated declarations by Central Bank chairman Viktor Gerashchenko that the bank would not intervene in trading to prop up the foundering currency, traders said that large offers of dollars at low rates over the past two days pointed to small scale moves to counter downward pressure on the ruble.


"The Central Bank has begun an intervention, pressing the market down," said Mikhail Zakharov, a trader at Moscow Narodny Bank. "The rise [of the dollar] is apparently ending."


As the dollar climbed in morning trading, the Central Bank offered $100 million at 28.90, then as the ruble rose, it offered two comparable lots at 28.5 and below, said Andrei Shubayev, a trader at Alfa Bank.


An offer of $40 million dollars at 28.5 stopped "hysterics" on the market Tuesday, when the ruble reached 29, Izvestia newspaper reported Wednesday, citing traders.


In afternoon trading for tomorrow settlement the battered currency fared better than it had in the previous day's tomorrow trade, closing at 28.7 to the dollar, 35 kopeks stronger than the 29.05 to the dollar reached in Tuesday's tomorrow trades.


Economists expressed mixed views on when and where the ruble might skid to a halt.


Former deputy central banker Sergei Alexashenko had predicted in an interview with Ekho Moskvy radio Tuesday that without Central Bank intervention, the dollar could rise to 30 rubles in the coming days, Interfax reported.


But others, including former Central Bank chief Sergei Dubinin and deputy head of the Economic Institute of Transition Andrei Ulyukayev, said the ruble should settle on its own between 28 and 29 to the dollar.


But "probably the Central Bank will try to do a little 'reverse,' so the rate ends up at 28.3 to the dollar," Interfax quoted Ulyukayev as saying.


George Pavlov, an economist at the Russian-European Center for Economic Policy, said the sharp rise in Russia's monetary base over 1999 meant a devaluation was inevitable.


But it may have been triggered by Central Bank efforts to introduce new currency controls, Pavlov and Zakharov said.


Pavlov said exporters may be holding onto dollars after Central Bank announcements that they would have to sell all their export revenues, and Zakharov pointed to a new Central Bank requirement for permission to conduct transactions of more than $10,000.


Zakharov said he also saw evidence that after the holiday hiatus, exporters were buying back foreign currency to pay for import orders, putting additional pressure on the ruble.


The Central Bank is caught in a difficult bind regarding the ruble.


In addition to seasonal factors pushing the ruble down, the Central Bank's ability to intervene to defend the currency is hampered by the likelihood that Russia will again tap into the nation's far from bulging hard currency reserves to pay foreign debts due in the first quarter of 1999.


Foreign debt payments of $1.2 billion are due in January alone and with fresh credits from the International Monetary Fund on hold, Russia can only make those payments by "borrowing" from Central Bank reserves.


The bank lent the government $4.5 billion last year to enable it to meet its debt commitments.


The government paid off a mere $210 million of those loans, which were supposed to be repaid before the end of last year.


With less hard currency coming in right now, the bank has very little capacity for intervention in the currency markets.


However, such considerations could be brushed aside if the ruble goes on falling. With presidential elections very close, Central Bank chief Gerashchenko would come under severe pressure not to let the currency slide much further.