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Central Bank of Russia chairman Sergey Ingnatyev has to defend the ruble not only against speculators, but also against citizens, who are losing confidence in it.
Photo: Vasily Shaposhnikov
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Oct. 24, 2008
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Ruble Stuck in the Trenches
Russias international reserves are dwindling fast. Between October 10 and 17, they were reduced $14.9 billion to $515.7 billion, the Central Bank reported yesterday. That was the third week in a row that they have lost about $15 billion, or 3 percent. Since August 8, when the reserves hit a peak, they have lost $81.8 billion. The main reason for the drop was the Central Banks sale of foreign currency and the outflow of capital, which reached $10 billion this week alone. In spite of the Central Banks support and support on the political level, the attack on the ruble continues unabated.
Part of the reduction in the reserves can be explained by the reevaluation of the euros and gold in the reserves. The reserves contain gold worth approximately $14 billion. Still, about $14 billion in the reduction October 10-17 was due to currency sales. According to the Goldman Sachs model, capital outflow that week amounted to $12 billion. The week before, it was $13 billion. The total for the year is $27.7 billion. The margin of error for such estimates is very high. RIA Novosti quoted a government source on Wednesday as saying that capital outflow since the beginning of the year has been $17 billion.

The Central Bank is viewing the huge demand for currency as speculative activity so far, Goldman Sachs maintains. Its reduction of the limit on currency swaps, from 50 billion rubles on Monday to 15 billion rubles yesterday, is evidence of that position. It deprives speculators of an instrument. Expectations of a devaluation of the ruble continue. The Central Bank is holding the ruble rate at 30.4 rubles to the currency basket ($0.55 + 0.45) and members of the government have made statements that no devaluation will take place. But that policy cannot last forever. The Central Bank will not allow the complete loss of the reserves, as it did in 1998, Goldman Sachs says.
www.kommersant.com

All the Article in Russian as of Oct. 24, 2008

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