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News // Russia

Ruble Devaluation - Possible or Not?

22 October 2008 , 10:49Ksenia Kochneva1104
Moscow exchange offices had a plethora of clients over the past weekend who wanted to have their rubles exchanged for US dollars. The people were certain that the dollar rate would skyrocket against the background of the current crisis. Many depositors decided to close their accounts in banks and convert their ruble savings to foreign currency. To crown it all, it was rumored that the ruble would loose its value again, like it happened in 1998, and one American dollar would thus cost 40 rubles (the current exchange rate is 26.3 rubles per dollar).

The Russian government rejected Tuesday an opportunity for the ruble to devaluate. Deputy Finance Minister Sergei Shatalov said that there was no devaluation planned.

Russian business paper Kommersant expressed an opinion that rumors of the devaluation of the ruble (to 40/$) were answered by rising of the exchange rate of the Russian currency to the currency basket ($0.55+?0.45) from 30.4 to 30.16. The ruble itself rose against the dollar by almost 20 kopecks to 26.06. The euro lost 22 kopeck for 35.17 rubles. That is all consequences of the Central Bank placing a limit (50 billion rubles a day, while activity had reached $10 billion) on currency swap, that is, short-term credit using foreign currency as collateral.

Kommersant reported that the Central Bank had begun taking part in the process only in September, before which it was mainly used by banks, causing a surge in activities. Currency swap is profitable when dollar obtained against rubles increase in value two or three months after the deal. Dollar-ruble trading started out slow on the MICEX Monday and interest rates grew to 40 percent, causing a tense situation. Even after they began to fall, the one-day MosPrime rate remained at a record-setting 21 percent.

Analysts say that, in the long-term, the ruble will weaken as a consequence of oil prices and the situation on the credit market, and it may still begin this week. They expect the ruble to fall about 5 percent. The Central Bank’s action yesterday was a response to rumors (it did not make issue statements about the rumors). Most of the players on the swap market are subsidiaries of foreign banks and currency speculators.

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