Russia's ruble drops 1.3%

MOSCOW -- The Russian ruble slid 1.3% against the dollar on Friday as an influential banker fueled speculation about a possible sharp devaluation of the currency and the central bank slashed the main interest rate.

Even though the Central Bank of Russia set the exchange rate at 31.5 rubles to the dollar in its daily fixing, down 1.3% on Thursday, the ruble was trading even lower on the MICEX exchange in late afternoon.

The ruble is traded in a managed float within a range established by the Central Bank to avoid large fluctuations. The Central Bank sets the benchmark exchange rate for the following day before currency trading on the market is over.

The ruble decline on Friday came after the central bank cut its refinancing rate from 11% to 10.75%. That was the fifth reduction in four months as the government strives to stimulate lending and push the national economy out of recession.

Russia's economy contracted 10.1% in the first half of the year and the country is running a budget deficit for the first time in a decade.

The ruble dropped sharply at the start of trading following comments from Anatoly Aksakov, a parliament deputy and member of the National Banking Council, who said Russia needs to devalue its currency by 30 to 40% to get the economy back on track. He said this would help industry and provide jobs.

The central bank rushed to dampen down on the devaluation talk, but did concede that "the ruble exchange rate could remain volatile." The bank's statement highlighted the role of changing oil prices.

The ruble came under heavy pressure last year after Russian stock markets tumbled and the credit crunch deepened. The national currency lost some 20% between Nov. 11 when the government began a controlled devaluation and Jan. 22 when the central bank allowed the ruble to drop sharply.

It is still down more than 26% from a year ago.

Last year's ruble devaluation combined with double-digit inflation depleted the ruble savings of most Russians and made their foreign-currency loans heavy and foreign travel less accessible.