Russia's Central Bank lets ruble fall before holiday season

Russia's Central Bank on Monday allowed its plummeting currency to drop further on the last day of trading before the long New Year's holiday, ending a rollercoaster year for the ruble on a historic low.
The ruble slid 1.5 percent on the MICEX foreign currency exchange, to close at 34.9 rubles against the Central Bank's euro-dollar basket.
It hit 29.2 against the dollar -- a level that hasn't been seen since 2005 -- and 41.7 against the euro -- an all-time low. It is the third sharp drop in the national currency in just five days, and the 12th since Nov. 11, when the supervised slide began.

The Central Bank on Tuesday is to set the official foreign currency exchange rates to serve as the holiday benchmark before a 12-day trading break that is set to run through New Year's and Russian Orthodox Christmas on Jan. 7 and end on Jan 11.
Russia's Central Bank normally does not allow the currency to lose more than 1 percent of its value in one day. The ruble has shed more than 20 percent of its value against the dollar since its high of 23.4 against the dollar in early August.
Russian Prime Minister Vladimir Putin for the first time Monday offered an explanation of government policy of incremental devaluation.

Putin said in comments carried by the ITAR-Tass agency that the ruble decline has been deliberately slow "to let the citizens get their heads around the situation."
He said the country's foreign reserves were being tapped "so that every citizen can decide what they should do with their savings."
The Kremlin is anxious to avoid a repeat of the 1998 financial crisis, when Russians rushed to withdraw their savings as the ruble plummeted suddenly, and has been letting the ruble fall bit by bit in a managed float, intervening when necessary by using foreign currency reserves to buy rubles.

The ruble's street rate at exchange booths could still decline while the foreign currency exchange is not trading. But seasonal spending could increase demand, said Yevgeny Nadorshin, chief economist at Moscow-based investment bank Trust.
"This will be a holiday time -- people will be partying and spending money," said Nadorshin. "They will need rubles for that."
Nadorshin admits that "some drop" in the street exchange rate is possible but says that the government will make sure the exchange booths have an adequate amount of cash available to prevent any shortages.

Analysts have estimated that the Central Bank has spent tens of billions dollars weekly to support the ruble.
The shrinking ruble is a symptom of energy-dependent Russia's struggle in the global meltdown. Growth estimates for 2008 have been slashed from 7.8 percent in July -- when oil prices reached historic highs -- to 6 percent, as Putin announced Monday.
In a rare concession, Putin admitted the financial crisis had dented Russia's economic performance, but used it as a source of motivation for his Cabinet.

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