Russia promises to support the ruble

Russia promises to support the ruble

Russia will not allow the ruble to fall dramatically, an influential government minister said Monday in response to rising fears that the national currency is headed for a devaluation.
A sharp drop in the ruble would mean that Russia "has broken its promises to the people," said First Deputy Prime Minister Igor Shuvalov. "Everything that people have earned should be safe."

If necessary, Russia will continue to spend billions of dollars to shore up its currency, and the band within which the ruble trades is not going to be widened, said Shuvalov, the top deputy to Prime Minister Vladimir Putin.

Many Russians have rushed to convert their savings into dollars as they did in the 1998 economic crisis when the value of the ruble dropped fourfold and inflation surged to 80 percent.
They have withdrawn rubles from their bank accounts and bought dollars at well above the official rates as fears mounted that the Kremlin would allow the ruble to float against international currencies and prove unable to prevent a crash.

The ruble has declined steadily since the Aug. 7 start of the five-day war with Georgia, losing some 13 percent of its value against the dollar. Without intervention by the Central Bank, which began in early September, it might have fallen farther and faster.

The Central Bank is estimated to have spent as much as $15 billion per week in recent weeks to buy rubles and support the exchange rate.

Shuvalov said Monday that Russia still has more than $500 billion in foreign currency and gold reserves, and the government is "not afraid of running out of money."

The ruble has come under pressure as the government starts to feel the impact of falling oil prices. Until this summer, the ruble had been gaining for several years on the back of higher commodities prices, especially oil and gas. The ruble strengthened to 23.14 against the dollar in July, its highest level in 9 years. But the currency's fortunes have reversed dramatically in the past three months and traded at 27.3 rubles at the MICEX stock exchange on Monday.
Russia's Central Bank pegs the ruble to a so-called "currency basket" of the dollar and the euro, allowing it to float only within a narrow range. The dollar accounts for 55 percent and the euro for 45 percent in the basket. The aim is to avoid the economic shock of sudden swings in the currency's value.

Unlike the dollar, the euro has lost some 8 percent against the ruble in the past six months.
In an attempt to restore confidence in the ruble, the Kremlin-friendly Izvestia newspaper published a guide Monday on investing during the financial crisis that discouraged readers from buying the dollar.

"If you believe in the U.S. currency well, good luck," the article said. "Remember that all the talk about diversification is for professionals."

Izvestia quoted an economics expert as saying that a higher dollar is a "temporary thing" and that the United States will not announce a default but "might decide to take $50 and $100 bank notes out of circulation," turning all of your dollar savings into a "souvenir."

The newspaper suggested investing into "something with good prospects" such as paying rent and utilities bills for three months ahead and paying off all loans. Another piece of advice was to "invest this money in your own beloved self" by splashing out on a health club membership or expensive medical treatment.