Russia Allows Ruble to Weaken 2nd Time in 2 Days

Ruble ratchets downward, as Central Bank loosens support for second time in 2 days

The ruble ratcheted downward Thursday as the Russian Central Bank again loosened its defense of the currency, which is under constant pressure from declining oil prices and increasing economic woes.
The depreciation was the second in as many days, the third this week, and the eighth since Nov. 11, when the bank began backing off support of the ailing national currency.
The bank manages the value of the ruble against the dollar and euro, and has sought to let it fall in value more slowly than it would have under free market conditions. Currencies of other economies based on commodities industries have tumbled much faster on expectations the global economic recession will crimp demand.

By late afternoon in Europe, the ruble traded at 33.03 against a basket comprised of the dollar and the euro, roughly a 1.1 percent drop from the previous day. It was down 1.4 percent at one point Thursday.
Russia's economic troubles have begun to snowball in recent weeks, with the ruble down about 15 percent since August in the wake of Russia's five-day war with Georgia. Stock markets have shed nearly 70 percent year to date, and investors have pulled billions of dollars out Russia. The price of oil, the mainstay of Russia's economy, has plunged by roughly $100 a barrel since July.
Analysts said the Central Bank was taking advantage of the strengthening euro to allow the ruble to depreciate while keeping the national currency steady against the dollar.

The average Russian watches the dollar-ruble rate far more closely, as it beams from exchange booths found on nearly street corners across the country.
The Central Bank fears that a sharp drop in the ruble's value against the dollar would cause panic, similar to what happened in 1998, when a collapsing ruble prompted runs on banks. The government insists it will not allow a steep devaluation of the currency.

"The euro has been strengthening rapidly against the dollar, providing an opportunity to widen the band while the ruble remains stable versus the dollar," said Tatiyana Orlova, an economist at ING Wholesale Banking in Moscow. "That's what most people tend to watch, and this move shouldn't alert people."

Economists question how long Russia can drain its international reserves to defend the ruble and have called for a steep one-off devaluation to stem capital outflows and quell speculative attacks.
Tatiyana Orlova, an economist at ING Wholesale Banking in Moscow, said she expected the Central Bank to let the ruble depreciate by 20 percent before the end of the first quarter 2009.

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