The Ruble and the Reserves

Despite a plunge in stock markets, oil revenues and the ruble, Alexei Kudrin said Russia's vast reserves - which have been accumulated in the 8-year-long oil boom - "have laid a solid foundation for a stable macroeconomy and the rate of the national currency."(...)

Russia's presidential aide Arkady Dvorkovich on Wednesday said again that the government would not let the national currency tumble.

"The Central Bank is in full control of the situation," Dvorkovich said in televised remarks. He admitted that lower oil prices may affect the ruble, but pledged that "there will be no devaluation".

From Bloomberg:

Russia's international reserves, the third-biggest after China's and Japan's, have fallen $122.7 billion, or 21 percent, since Aug. 8 as the central bank tried to shore up the ruble. At the same time, President Dmitry Medvedev, 43, has pledged more than $200 billion of tax cuts, loans and other measures to maintain economic growth, threatened by plummeting oil prices and investor flight.

The reserves' decline increases the chance the central bank, which signaled last week it is willing to gradually weaken the ruble, will stop supporting the currency.  (...)

"The 1 percent devaluation feeds into capital flight,'' said Osakovsky. ``It helps fuel speculative attacks'' on the ruble. "There will be a few small devaluations and eventually they will be forced to accept a floating currency rate.''

That's not necessarily bad news. The dollar-denominated revenue from energy exports would rise in ruble terms, making it easier to balance the budget even with lower oil prices. At the current level of 27 rubles per dollar, the 2009 budget would, be balanced at an average Urals price of $55 a barrel, according to Struchenevsky's estimates.

"The only solution is to devalue the ruble, to stop supporting it,'' Renaissance Capital's Sharipova said.