Russia has spent more than one-quarter of its forex reserves, the world's third-largest, supporting the ruble in recent months, and even the gradual devaluation policy begun in November had, until Tuesday, failed to ease the pressure on the currency.
This policy, coupled with growing expectations of a further devaluation, has killed the domestic debt market and stalled the government's anti-crisis measures, turning foreign currency bets into the market's most profitable transaction.
The Central Bank said it had widened the ruble's trading band for a seventh time this year, with the currency duly weakening by 40 kopeks to 38.20 against the dollar/euro basket in early trading.
The ruble closed, however, at 37.32 against the basket -- strengthening beyond the 37.80 mark seen as the Central Bank's support level Monday. Dealers said the Central Bank did not intervene in the market.
The recovery provided some substance to official comments that the devaluation policy may be nearing its end.
"We are much closer to a kind of equilibrium [exchange rate] level than ... a month ago," Kremlin economic adviser Arkady Dvorkovich told The Financial Times in an interview.
"The Central Bank will conduct a policy that [will] lead to this equilibrium level, but it's not far away," he added.
Ruble nondeliverable forwards, a barometer of market expectations, cast doubt on Dvorkovich's remarks, however. Bets on currency depreciation remain popular, with ruble/dollar forwards traded on the RTS exchange hitting a daily record of nearly 16,000 deals on Tuesday.
"At the current pace of adjustment, the ruble in any case will settle at its new equilibrium value relatively soon," said Ivan Tchakarov, an analyst at Nomura International.
Government officials maintain that they chose the gradual devaluation policy to enable households and most businesses to shift their cash into foreign currency in an orderly way. They had to resist heavy pressure from a one-off depreciation lobby.
The new government forecast based on the average price of oil at $41 per barrel implies that the ruble should average 41.4 to the basket, made of 0.55 dollars and 0.45 euros. That assumes more devaluation seen by some analysts as harmful for the economy.
A shortage of ruble liquidity ahead of value-added tax payments has also helped the ruble, analysts said.
Dealers said they could not yet establish the Central Bank's new support level and were puzzled that the ruble had firmed despite a fall in the price of Urals crude.
The Central Bank also called a meeting of chief treasurers of some major commercial banks on Tuesday to discuss exchange rate policy. Dealers said talk of the meeting helped the ruble.
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