OFFICIAL ALLAYS RUBLE DEVALUATION FEARS

Cbonds. Info
21.10.2008 – RBC
Russia

The Russian government is not planning to devalue the ruble, Deputy
Finance Minister Sergei Shatalov told reporters in the Armenian
capital of Yerevan today. "No such actions are planned," Shatalov
said, dispelling rumors of the possible ruble devaluation, Echo of
Moscow radio reports.

Rumors of the coming ruble devaluation appeared last week, prompting
people to frantically buy dollars, with queues at exchange points in
Moscow and some other regions reported on the weekend.

The Central Bank of Russia interfered to stop the panic yesterday,
providing less foreign currency to banks for currency swap operations,
and thus strengthening the ruble by 1 percent against major foreign
currencies.

In the short term, the regulator’s moves should soothe traders,
experts say. Analysts polled by Vremya Novostei do not expect any
significant increase in demand for foreign currency shortly, provided
that speculative traders do not find another method against the
Central Bank. In the long term, however, the ruble is set to weaken
if oil prices continue to fall.

Capital flight from Russia, the liquidity crisis in the banking sector,
the collapsing stock market and shrinking international reserves –
all this prompted speculators to launch a new attack on the ruble in
the hopes of capitalizing on its depreciation.

Last week speculators used currency swap operations to raise the
dollar’s exchange rate. Swap operations reached $7 billion on Friday,
according to Yevgeny Nadorshin, an analyst at Trust Bank, and many
traders hoped that the Central Bank would sell the same amount of
foreign currency on Monday. On Friday evening, however, the Central
Bank said it would limit its swap operations. Indeed, on Monday the
Central Bank provided just RUB 50 billion for such transactions. As
a result, the market was short of rubles, sending overnight lending
rates to 45 percent on the interbank market. The ruble jumped RUB
0.2 in the first minutes of trading.

"As a result, swap operations immediately became very risky,"
Nadorshin said, "It turned out that betting for a strong dollar is
very unprofitable now."

"The Central Bank took effective measures to ease the speculative
pressure on the ruble," says Stanislav Yarushevichyus, at ING. "This is
an important message to traders who tried to play against the Central
bank on rumors of the ruble’s devaluation. Most likely, such traders
will close their positions over the next few days," he believes. The
liquidity situation has stabilized slightly following reports that
the Central Bank had issued RUB 387.7 billion in collateral-free
loans. "This has calmed the market, and lending rates on the interbank
market have dropped," Nadorshin said.

Speculators whose bet on the dollar did not pay off will now be playing
less aggressively against the Central Bank. In addition, tax payments
are coming due, which will only add to demand for rubles. Otherwise,
if banks continue betting on the strong dollar, using the Central
Bank’s funds, they might run short of cash for tax payments and
obligations to clients, which easily leads to license revocation.