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Ruble Rebounds Amid Heavy Central Bank Intervention

October 12, 1994

MOSCOW (AP) _ The ruble rebounded today after the Central Bank spent millions of its precious reserves to rescue the ailing Russian currency. But Boris Yeltsin still fired his top finance minister and demanded that lawmakers sack the chairman of the Central Bank.

The ruble strengthened 4.8 percent, closing at 3,736 to the dollar today on the Moscow Interbank Currency Exchange. On Tuesday, the ruble lost a quarter of its value in panic selling, closing at 3,926.

Tuesday’s plunge had been the worst one-day showing for the Russian currency since trading began in 1992. Today’s rise still left the ruble far below Monday’s closing of 3,081.

The currency turmoil set off political fire alarms in the Russian government.

Yeltsin used his presidential powers to fire acting Finance Minister Sergei Dubinin, while Prime Minister Viktor Chernomyrdin cut short a Black Sea vacation to rush back to Moscow. Parliament voted today to hold a no- confidence vote in the government next week.

Yeltsin blamed the turmoil on ″either sabotage, or a demonstration of extreme irresponsibility and sloppiness by a group of people who organized this crashing downfall of the ruble.″

Today’s trading marked a significant policy shift for the Central Bank, which under chairman Viktor Gerashchenko been allowing the ruble to fall by pursuing a policy of non-intervention in the currency market.

That policy unnerved traders, who wondered whether the bank was unwilling, or worse, unable, to stop the ruble’s drop. Before stepping back from the market last month, the bank had spent billions of dollars this year to bolster the ruble.

It was not unclear, however, how long the bank could continue to support the ruble, because its hard-currency reserves are believed to have dwindled to between $4 billion to $5 billion. The ITAR-Tass news agency reported that the bank spent $90 million to buy rubles today alone.

″The Central Bank will now step back to control the market, but does not have an unlimited capacity for controlling the rate,″ said Igor Doronin, a curency exchange expert. ″If the rate swings back the way it did today, and if it stays there, it will be a good lesson to those who were speculating. They need to be punished.″

Another analyst said the bank was trying to calm the panic that originated among traders and was spreading to ordinary citizens.

″The Central Bank will certainly continue this kind of pressure, and bring the ruble down to 3,500 by the end of the week,″ said Gleb Kostin, a trader at Tokobank. ″Then they will keep it steady for a while to make people more calm.″

Russian newspapers blamed the Central Bank and Gerashchenko for prompting what most called ″Black Tuesday.″

″The unsinkable leaders of the Central Bank have demonstrated in this case their absolute inability to keep the situation on the currency market under control,″ the respected daily Segodnya said.

It said the government had in some ways welcomed the decline of the ruble, hoping that Russian goods would now be more attractive on international markets.

The bank jumped back into the market Tuesday in the final minutes of trading, spending $80 million to stop the ruble from going under 4,000. It also announced it was raising its commercial lending rate to 170 percent from 130 percent in hopes of curbing inflation.

The ruble’s drop on Tuesday sent shock waves throughout Moscow. Money exchanges and kiosks closed their doors, and shoppers scrambled to buy refrigerators, televisions, or anything more durable than rubles.

″My mother had these old rubles that she hadn’t changed (into dollars) yet, and I yelled at her: ‘Why do you keep this silly money?’ But she still thinks we’re living under communism,″ said Lena, a cleaning woman who refused to give her last name.

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