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22 Jan, 2009 17:57

Central Bank brings gradual Rouble devaluations to an end with big move

Central Bank brings gradual Rouble devaluations to an end with big move

The Russian Central Bank brought an end to 2 months of minor Rouble devaluations by announcing it would set the upper or weaker level of the Rouble’s bi currency basket at 41 Roubles effective from Friday January 23.

Central Bank Chairman said that although the 41 Rouble mark was the new upper limit of the Rouble’s technical corridor, it was possible that it would trade ‘significantly’ stronger. For comparison the Rouble was trading against its bi currency basket at 37.2 during Thursday January 22.

With the Rouble’s bi currency basket comprising 45% dollars and 44% Euros the new broadening effectively translate into a possible rate of 36 Rouble’s equal to $1 U.S. assuming the American currency remained at about 1.3 to the euro. The announcement implies a possible devaluation of about 10%.

The announcement comes after the Russian Central Bank has broadened the technical band for the Rouble more than 20 times since early November, allowing it to depreciate.

The Bank says it “has finished with the major gradual correction of the borders of the technical corridor that determines the permissible fluctuations,” and that it will now allow ‘market factors’ to help determine its rate, while continuing to intervene in defence of the currency. It added that it did not expect to change the technical corridor again in coming months

Some analysts are saying that an immediate move to the weaker end of the technical corridor, or a rate of 36 to the U.S. dollar, is unlikely in the short term with the Russian financial system currently experiencing a Rouble shortage