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Inflation Fears Sink Ruble to New Low : Russia: Trading at 1,024 to the dollar, the troubled currency has lost more than half its value since the start of the year.

June 01, 1993|From Reuters

MOSCOW — Concern about the economy pushed Russia's ailing ruble down to a new low of 1,024 to the dollar on Monday as the tiny Moscow Interbank Currency Exchange switched to daily trading sessions.

The new rate compares to 994 at the last session on Thursday. The ruble has now lost more than half its value since the start of the year, when it traded around 415 to the dollar.

"People are still afraid of higher inflation," one Moscow trader said. "And the fact that gasoline prices doubled last week gave them another reason to try to buy dollars."

He expected the ruble to weaken further to 1,200 to the dollar in the near term, a rate in line with that already being offered in banks and exchange booths across the Russian capital.

A weaker ruble will fuel inflation even more, increasing the cost of essential imported goods and making it harder for Russia to find the cash it needs to pay its foreign debt.

In December, 1991, before Russia launched a reform plan designed to convert its centrally planned economy into a market system, there were 90 rubles per dollar.

The currency, used in Russia and many other members of the Commonwealth of Independent States, is not convertible on world markets. But regular sessions on the Moscow exchange give nearly 100 banks a chance to buy and sell dollars for rubles.

The Russian central bank has used the rate set on the Micex exchange on Tuesdays and Thursdays as its benchmark rate.

The market traded just over $1 billion in the whole of 1992. It has so far only traded the dollar twice a week, offering the German mark on a third day.

But it switched to daily trading sessions on Monday and will buy and sell dollars four times a week and marks once a week.

"Daily trading means that Russia will have more of a market than it had before," said Alexei Osenmuk, deputy general manager of the currency exchange.

But he warned against reading too much into the ruble's fall past 1,000 to the dollar. "Arithmetically this is no different from declines in previous sessions and it is caused by the same factors," he said.

"It is only journalists who talk about 1,000 rubles per dollar as a key level."

The ruble has been under pressure amid fears that Russia is not doing enough to rein in inflation or control spiraling money supply growth.

Official figures show prices rose 669% in the year to April 30. Cash in circulation grew 26% in April alone, inflated by spending promises from President Boris Yeltsin before a key referendum held on April 25.

Economists have said an agreement between the government and the central bank to curb credit growth and bring inflation below 10% a month should be positive for the ruble in the medium term.

"An agreement to rein in credit emission could have a marked impact on the currency pretty quickly if everything goes well," one international economist said.

Finance Minister Boris Fyodorov has said it will be clear within two weeks whether the central bank intends to fulfill its share of the deal. He has promised that the government will keep spending under control to help the currency.

Western economists say loose monetary policies are to blame for soaring inflation, a side effect of Russia's economic reforms. A second drawback has been a sharp decline in industrial production.

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