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Thursday, January 22, 2009

Russian Reserves Sink

The AP reports:

Russia's Central Bank says it will widen the ruble's trading range to allow an effective 10 percent devaluation of the national currency. Analysts said the move would prompt an immediate drop in the currency's value. The bank said the limit of the band, measured against a two currency "basket" of dollars and euros, will be set at 41 rubles as of Friday.
Why? For one to be more competitive, but as important to protect their reserves. Bloomberg reports:
Russia’s international reserves tumbled $30.3 billion last week, the second-biggest drop on record, as the central bank accelerated the pace of the ruble’s devaluation and sold more foreign currency to manage the decline. The value of the stockpile, the world’s largest after China’s and Japan’s, fell to $396.2 billion, after dropping $11.7 billion between Dec. 26 and Jan. 9, when there were 2 1/2 official currency trading days.

“The central bank was intervening heavily on the market last week, selling foreign currency,” said Natalia Orlova, chief economist at Moscow’s Alfa Bank, the country’s largest privately owned lender. “They quickened the pace of the step-by-step ruble depreciation, so everyone rushed for foreign currency.”