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Central Bank Moves to Cut Ruble Buying

The Central Bank acted Friday to reduce upward pressure on the ruble, trading near four-year highs to the dollar, by cutting the amount of rubles exporters are required to purchase.

Russia will lower the percentage of hard currency revenues exporters must convert to rubles to 10 percent from 25 percent, Central Bank Deputy Chairman Konstantin Korishchenko said.

The decision, which will mean exporters are committed to buying fewer rubles with their dollars, will come into force when published in the Central Bank's official bulletin, normally issued on Thursdays, Korishchenko told a financial conference.

Exports topped $16 billion in both September and August, according to Central Bank data. The ruble has surged on receipts from booming oil exports.

Analysts said the move was also aimed at trumpeting confidence that there was no danger of another ruble collapse like one in 1998 that destroyed the population's savings.

Rubles for "tomorrow" delivery last traded down on the previous session's fix at 28.3375 to the dollar on the MICEX, giving up earlier near-four-year highs, shadowing moves on international currency markets.

The ruble has become highly sensitive to moves in the euro-dollar rate as sophisticated speculative money is playing a bigger role in the market.

Moscow's currency exchange said it plans to create a new ruble/euro contract in early 2005 to make it easier to trade euros, lending more depth to Russia's dollar-driven foreign exchange market.

Russia must counteract upward pressure on the ruble if its fledgling non-energy sector is to stay competitive, as it aims to have a free-floating currency in 2007.

At the moment the Central Bank dampens ruble appreciation by periodically buying dollars -- $11 billion in October -- at artificially high prices, but economists warn this exacerbates inflation, one of the economy's most enduring problems.

If the bank does not intervene, the ruble could surge to 20 to the dollar, which would damage the economy, First Deputy Chairman Alexei Ulyukayev said Thursday.

Korishchenko said the ruble would become more volatile next year as the Central Bank completes a shift in its exchange rate policy from targeting the dollar to focusing on a basket comprised of euros and other currencies.

Russia also hopes that its plans to convert a budget stabilization fund of surplus oil revenues into foreign currency would also reduce pressure on the ruble, analysts say.

At the moment the fund -- set to top 500 billion rubles ($17.5 billion) this year -- is held in interest-bearing ruble accounts, but the government will move the cash into top-rated investments in dollars, euros and sterling in early 2005.

(The Moscow Times 29.xi.04)

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