Russia Is Trying to Shore Up the Ruble By Giving Banks Money to Bet Against the Ruble

Or something like that.

Russia’s central bank is exacerbating the ruble’s 35 percent plunge since August, even as it struggles to defend the exchange rate, by providing loans to banks that speculate on the currency, say Alfa Bank and UniCredit SpA.
Bank Rossii lent 7.7 trillion rubles ($214 billion) in overnight and seven-day loans secured with bonds or other collateral in the 16 trading days last month, about double the 4.8 trillion rubles provided in so-called repurchase auctions in December, central bank data show. The ruble lost 18 percent against the dollar in January. It weakened today beyond the lower limit that the central bank said it will defend.
“A significant amount, if not all, of the speculative attacks on the ruble are funded by the central bank itself,” said Vladimir Osakovsky, Moscow-based economist for UniCredit, Italy’s largest bank.
Prime Minister Vladimir Putin praised the central bank’s “gradual devaluation” policy in a Bloomberg Television interview Jan. 25, saying it avoided a repeat of the financial crisis a decade ago when the ruble plunged as much as 29 percent in a day as the government defaulted on $40 billion of debt. Jim Rogers, chairman of Rogers Holdings, said today that Russia has become “unstable” and may break apart. He’s considering betting against the ruble because of central bank mismanagement.
Policy makers are trying to stop speculators from driving down the currency, which makes it more expensive for borrowers to pay back debt and fuels inflation, at the same time it seeks to hold down interest rates to keep the economy from contracting for the first time since 1998. Russia’s inflation rate rose in January for the first time in five months to 13.4 percent as the weakening ruble pushed up the cost of imports.

Posted by on February 5th, 2009 at 12:54 pm


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