Vyugin Warns of Market Bubble (Russian Central Bank)

Vyugin Warns of Market Bubble

The Central Bank's "protectionist" ruble policy is causing the stock market to overheat and is threatening to create an asset bubble, the nation's top financial regulator warned Thursday.

The Central Bank is reacting wrongly to the U.S. Federal Reserve's decision to "pump the world economy full of cheap dollars," Oleg Vyugin told Vedomosti. Instead of intervening in the currency market to keep the ruble from strengthening against the greenback, the Central Bank should let the market decide what the currency is worth, said Vyugin, who ran monetary policy at the bank before moving to head the new Federal Service for Financial Markets last month.

"The only defense against such enormous liquidity to let the ruble float freely. In such a case the national currency would appreciate, the flow of dollars would be devalued and excessive liquidity would not result," he said.

A massive inflow of weakening dollars from record oil and gas exports is encouraging Russians to convert their savings into rubles, much of which is being invested in equities -- either directly or via bank deposits, he said.

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http://www.themoscowtimes.com/stories/2004/04/16/001.html