Russia is to allow a weakening of the ruble on Friday of up to 10 percent, the first major devaluation of the currency since the global economic crisis erupted last year, the central bank said Thursday.
But the central bank -- which has until now pursued a policy of carrying out multiple, slight devaluations of the currency -- insisted it would maintain the new ruble value for the next months.
Russia has been hit hard by the global economic crisis, which has already seen billions of dollars taken out of the country, its companies denied fresh credit lines and its exports like crude oil slump in value.
Russians are still haunted by the shock of the sudden devaluation of the ruble in the economic crisis of 1998 and its leaders, including Prime Minister Vladimir Putin, have vowed nothing similar would happen this time.
The central bank said in a statement that it would widen the corridor within which the ruble moves against a euro-dollar currency basket, effectively allowing the currency to devalue.
"From January 23, the upper limit of the technical corridor will be established at a level of 41 rubles, which with the current exchange rate of 1.3 dollars to one euro corresponds to 36 rubles to one US dollar," it said.
The ruble earlier Thursday was at 37.22 rubles against the currency basket composed of 55 percent dollars and 45 percent euros.
On the Moscow currency exchange, the ruble had closed at 32.73 rubles against the dollar.
The central bank said Friday's move would "complete" the "correction" of the ruble, indicating it would not be allowing further devaluations in the near future.
"If these actions result in an end to the process of mini-devaluations and the uncertainty that has hung over the currency since last August, then this will be a big positive for investment sentiment," said Chris Weafer, chief strategist at the Uralsib investment bank.
The central bank has already spent tens of billions of dollars over the last months in interventions to prop up the ruble's value.
Russia's forex reserves dropped 30.3 billion dollars to 396.2 billion dollars in the week January 9-16, below the psychologically important 400 billion rubles level.
Central bank chief Sergei Ingnatiev said: "The exact duration of the maximum (corridor) limit is not established but we are neither talking about days, nor about weeks, but about months."
Weafer emphaised that the move does not mean the ruble will immediately lose value to the maximum 41 rubles set against the currency basket as there "is a severe ruble liquidity shortage in the system currently."
Since mid-November, the central bank has allowed the currency basket corridor to widen in effective devaluations some 20 times, in an apparent bid to reassure people there was no danger of a sharp, sudden devaluation.
However taken together, these piecemeal devaluations mean that the ruble has already lost around 25 percent of its value against the euro and the dollar since the process began on November 11.
The bank also moved to justify its policy of bit-by-bit devaluation over the last two months, which has puzzled some economists who questioned why it did not execute one big devaluation in one go.
"The gradual correction in the exchange rate of the ruble has allowed the Russian economy to react to the current risks and avoid the negative consequences of a sharp fall in the exchange rate of the ruble," it said.
In a process of extraordinary complexity described as a "game" with the market by some economists, the central bank last week allowed small devaluations of the ruble almost every day.
However, it then intervened massively on Tuesday and also on Wednesday in surprise moves that for the first time increased the ruble's value, making Thursday's announcement all the more unexpected.
President Dmitry Medvedev's chief economic advisor Arkady Dvorkovich had offered a possible hint earlier this week, however, saying the "period of the rapid lowering of the ruble's value was coming to an end."
He said a rate of 35.1 rubles to the dollar was realistic.
Meanwhile, underlining the severity of the economic crisis in Russia, Deputy Economic Development Minister Andrei Klepach said the economy would contract by 0.2 percent in 2009.
Ignatiev said industrial production fell 10.3 percent year-on-year in December.
Source: AFP Global Edition
