October 27, 2004
MOSCOW NEWS
The Central Bank allowed the ruble to climb Tuesday for a third session to new six-month high against the dollar, prompting warnings from economists that hot money could be attracted by what looks like a one-way bet.
The Central Bank intervenes from time to time to cap the ruble by buying dollars to offset the upward pressure on the ruble caused by the inflow of dollars from rising oil export revenues. The exchange rate largely depends on where the Central Bank decides to put a floor under the dollar.
The ruble has rallied by 1.8 percent in the two weeks since the monetary authorities loosened their grip on the currency in a bid to curb resurgent inflation, which Economic Development and Trade Minister German Gref warns could overshoot a 10 percent target this year.
On Tuesday, the Central Bank intervened with a lower dollar bid early in the session before withdrawing it, unleashing further ruble gains. The ruble rose to 28.72 by mid-afternoon, its highest since April 21, its biggest straight gain since January.
"Earlier today the Central Bank came in at 28.7650 but now it seems it has withdrawn its bid," one dealer said. The dollar's slide to an eight-month low against the euro has also put the Central Bank's policy to the test.
"By allowing the ruble to move more freely, the bank will be curbing inflation but at the same time inviting more short-term capital inflows," said CSFB economist Sergei Voloboyev. "The dollar is very weak globally, so it is difficult to resist a correction against the dollar at present."
But Central Bank First Deputy Chairman Alexei Ulyukayev told Komsomolskaya Pravda that the ruble should end the year at 29 to the dollar or slightly below -- roughly where it was before the current bout of appreciation.
(Reuters, Bloomberg)
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