November 25, 2004
The Moscow Times
The ruble shot to its highest level against the dollar Wednesday on speculation that the Central Bank is letting the currency appreciate in an effort to slow inflation.
The ruble rose 0.4 percent against the dollar to 28.40, its highest since January 2001. The currency has gained nearly 3 percent versus the ailing greenback this year.
"It looks like the Central Bank is staying out of the market," said Igor Vasilyev, director of financial markets at Alfa Bank in Moscow. The Central Bank controls the value of its currency by buying and selling dollars.
The Central Bank expects the rate of inflation will be about 11 percent this year and fall to about 8 percent in 2005. The bank's original target was to slow inflation to 10 percent this year, from 12 percent in 2003.
The gains came after Central Bank First Deputy Chairman Alexei Ulyukayev said Tuesday that every 1 cent move down by the dollar against the euro roughly translated into a 10-to-15 kopek move up by the ruble against the U.S. currency.
"Basically, Ulyukayev gave the market an indication that the Central Bank would not be resisting further appreciation in the next few weeks," said UralSib brokerage senior economist Vladimir Tikhomirov.
Record prices for Russia's chief export, oil, put upward pressure on the ruble, but the Central Bank has tried to stem its rise to keep exports competitive.
The downtrend of the dollar against the ruble "will remain if the dollar does not correct against the euro," said Alfa Bank dealer Alexei Bukleyev.
The dollar plumbed a record low against the euro on Wednesday, as news that Russia may consider boosting the share of euros in its vast foreign currency reserves gave traders another reason to dump the currency.
The dollar, which fell below $1.313 per euro, met with fresh selling when Ulyukayev said he saw no reason for the dollar to appreciate and that the bank was reviewing its forex reserves "with the highest priority."
"The comments from Russia yesterday -- that's a big thing for sentiment right now," said Paul Mackel, foreign exchange strategist at ABN AMRO. "Any story that the market can put a dollar-negative spin on is welcome."
Speculation swirled in the market that the Central Bank could further increase the share of euros in its $110 billion-plus reserves. Euros already account for around a quarter of the reserves, compared with 10 percent two years ago.
Windfall revenue from oil and gas exports is flooding Russia with foreign currency, driving the ruble higher. The nation, the world's No. 2 oil exporter after Saudi Arabia, is seeking to cap inflation while preventing the ruble's strength from stalling the longest economic expansion since the fall of the Soviet Union.
http://www.themoscowtimes.com/stories/2004/11/25/041.html