Backing The Ruble
For the first time since it allowed the ruble to float in 1992, Russia is pledging to support the much battered currency. The government says it will keep the ruble in a band of 4,300 to 4,900 to the dollar until Oct.1. The currency now trades for about 4,500 rubles per dollar.
The aim is to chill speculation and boost investor confidence. The ruble has been strengthening since bottoming out at 5,130 in May. Inflation has fallen from 17.8% per month in January to 6.7% in June. The government also has amassed a $10 billion war chest to back the currency.
But the real test of the new ruble policy will come in October, when the government commitment expires. Inflation traditionally soars in Russia in the fall, when Moscow spends millions of dollars on credits to farmers and miners. "Come October, if inflation is not below 5% a month, then the ruble will depreciate again," says Christopher Wood, investment strategist for emerging markets at Morgan Grenfell & Co. in London.