Russian Ruble Hits 5-Year High Against U.S. Dollar
Russian Ruble Hits 5-Year High Against U.S. Dollar Created: 09.03.2005 15:08 MSK (GMT +3), Updated: 16:21 MSK MosNews
On Wednesday, March 9, Russia’s domestic currency, the ruble, climbed to a new five-year high against the U.S. dollar, triggering dollar-buying intervention from the Central Bank aimed at curbing the currency’s rise.
High world prices for oil, Russia’s main export, and a weak dollar on global markets helped the ruble rally sharply against the greenback as traders returned to their desks after the International Women’s Day holiday break. “While we were all congratulating the ladies, a few things happened, including a rise by the euro (against the dollar) of one big figure,” said Soyuz Bank dealer Pavel Gusev, quoted by Reuters. Gusev added that the Russian currency often tracked euro-dollar moves.
Dealers said they suspected the Central Bank had bought dollars and sold rubles for “tomorrow” delivery early in the session at 27.55 rubles to the dollar, and later at 27.54, after being seen intervening last week at 27.67.
Russian Central Bank’s stated policy is to step in on both sides of the market to smooth currency volatility, but in practice it mainly buys dollars in an attempt to curb ruble appreciation and preserve Russia’s economic competitiveness. The Central Bank has been criticized for such moves by the International Monetary Fund which last year advised this body of financial authority to fight inflation rather than ruble appreciation.
The knock-on effect of fighting ruble appreciation has been the boost in ruble liquidity which is fuelling an acceleration in inflation —- which officials now admit will probably overshoot this year’s 8.5-percent target.
Dealers expect the Central Bank to yield eventually to the appreciation pressures, as allowing the ruble to rise is the only viable way to curb price pressures at a time when Russia is already running a hefty budget surplus. “Ruble appreciation is the most credible means the government will use to control prices,” said Dmitry Akulov, a dealer at Raiffeisenbank, quoted by the agency.
“Nobody is taking profits now —- there is no demand for dollars,” said Gusev. “That means people think that the (dollar) exchange rate will fall.”
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