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. Last Updated: 07/27/2016

NEWS ANALYSIS: Robust Ruble Creates A Dilemma for Bank

It's something of a first for a nation that has struggled for almost a decade to prop up the ruble and keep its coffers filled.

The Central Bank is now actually fighting to keep the ruble from strengthening while its reserves are growing at an astounding clip of $300,000 to $500,000 a week - and for once without any support from the West, economists and traders said.

"The Central Bank is walking a tightrope between preventing the ruble from strengthening and not wanting to print money, which could prove inflationary," said Roland Nash, economist at Renaissance Capital investment bank.

The Central Bank announced Thursday that reserves had swollen last week to a 21-month high of $17 billion, the highest they have been since the bank received a multibillion-dollar infusion from the International Monetary Fund in July 1998.

The robust ruble also failed to disappoint Thursday, firming up another 3 kopeks to 28.42 to the dollar.

The Central Bank can thank for the boon the country's strong trade surplus of $4 billion a month, lower capital flight of about $500 million a month and high oil prices, analysts said. The trade surplus averaged about $2.5 billion a month last year, while capital flight was an astounding $1 billion to $2 billion a month.

The good news for the government this year is that the firm ruble and growing reserves mean it won't have to break into a sweat about meeting billions of dollars in payments on foreign loans this year, a concern that had left some officials jittery after the IMF refused to resume lending last year. Negotiations with the IMF are ongoing.

With an average of 32 rubles to the dollar drawn into this year's federal budget, a yearlong rate of 28 rubles would alone hand the government an additional $500 million to $700 million over the year, according to Troika Dialog.

The bad news - if it can be called that - is the opaqueness of the currency policy that the Central Bank is pursuing. Central Bank chairman Viktor Gerashchenko has flip-flopped for months in publicized comments regarding the ruble rate. Just Wednesday, he said the ruble would perform in line with the budget's average for the year of 32 rubles, Interfax reported.

If the government wanted to reach that average now, it would have to keep the ruble at 33.50 for the rest of the year or allow the currency to drop by more than a ruble a month.

But neither scenario - which would mean cranking up the ruble printing presses - is likely, seeing that the state is pushing for increased investment while touting the economy's newfound stability, experts said.

"This year, the government won't print rubles but collect rubles. All the dollars that will be bought by the Central Bank will be taken from the economy," said Sergei Prudnik, economic analyst at Troika Dialog.