WHO NEEDS WEAK RUBLE: ANALYSTS EVALUATED PROSPECTS OF THE NATIONAL CURRENCY

Gorod Novostey (News agency), February 10, 2014

 

WHO NEEDS WEAK RUBLE: ANALYSTS EVALUATED PROSPECTS OF THE NATIONAL CURRENCY

Ruble stopped the rapid decrease of January and started getting stabilized.
On the first day of trade in February ruble stopped at the achieved level. Dollar stayed above 35 rubles and euro stayed at around 47.5 rubles. Experts presumed that January's ruble depreciation was caused by fundamental factors only partially. Deputy CEO of the Moscow bank of Sberbank Denis Konstantinov told a correspondent of REGNUM news agency, "The Bank of Russia had been moving towards free float of ruble and inflation targeting for a long time and that was why the Central Bank did not buy ruble so actively."
The tactic worked out by the government of Russia implies solving of the problem of slowdown of economic growth by ruble depreciation. The anti-crisis measures are fairly broad but this measure is the first. Targeted investments of the Central Bank represent the tool of reduction of the value of national currency.
Bearing in mind the current economic conditions, Minister of Economic Development of Russia Alexei Ulyukaev announced that he considered postponement of the time of implementation of free formation of ruble exchange rate possible. In turn, former Finance Minister Alexei Kudrin presumes that there is no need to postpone transition to free ruble exchange rate formation in 2015 but authorities of Russia together with the Central Bank should take measures for elimination of misbalances in Russian economy. The policy of the Central Bank was explained by head of the Bank of Russia Elvira Nabiullina, "If you have a look, we have not planned going away from interventions completely. It was presumed that they would remain for the purpose of maintenance of financial stability. Of course, we will simply reduce interventions for maintenance of a certain exchange rate."
The correspondent of REGNUM news agency says that experts presume that now ruble is partially compensating for the lost positions. Konstantinov presumes, "Taking into account fundamental parameters, there are no reasons for strong further exchange rate of the national currency. Most likely, ruble will move in the framework of the general dynamic of currencies of developing countries but already in the nearest months it is possible to expect certain ruble appreciation."
Igor Dukeov, EMT Area Principal of Stockholm School of Economics Russia, remarks, "It seems to me that exchange rate will remain approximately the same with small fluctuations. Ruble was overvalued and the Central Bank started converting it to real value. The real ruble value is smaller than it has been during this entire time."
Dmitry Belov, director of the department for trade on international markets of SB Bank, points out that fluctuations of currency exchange rates always come in waves. Belov adds, "For example, we could recall that alarming rumors already circulated on the market last summer when dollar exchange rate grew to 33.5 rubles in July but already by September everything quieted down and ruble grew slightly. A new wave has risen now but I do not think that it will be very long. Along with this, the situation is changing quickly. Last week, it seemed that the speed with which we were passing another level said that we have chances to overcome the historic maximum achieved in 2009 when dollar cost 36.376 rubles. But now falling of ruble is already over."
Victoria Salamatina, deputy general director for audit of Energy Consulting, told REGNUM, "If we look in the temporal corridor of the ruble dynamic we can see a mathematical sinusoid of fluctuations clearly. In the last few years we have seen and, in my opinion, clearly understand that the matter is about short-term effect of the exchange rate and a few months alter the exchange rate will get stabilized on a lower level."
Experts presume that cheap ruble is beneficial for the economy oriented at export in general. All exporters benefit from ruble exchange rate decrease because their products become more competitive. In the general case this is also favorable for budget revenues because export revenue is written in ruble equivalent in the income. However, according to Dukeov, in the long term this strategy will not contribute to strengthening of the economy because the stronger the national currency the stronger and healthier the economy.
The population is less lucky. Weak ruble increases the costs of imported products (that account from 40% to 50% according to approximate estimates) and domestic producers traditionally increase prices after growth of their prices. Along with this, prices usually grow at an outrunning pace in comparison to decrease of the exchange rate of the national currency. Konstantinov comments, "In this case ruble has fallen not so much towards dollar and euro and correction of the decrease is underway now and that is why this factor should not have a strong effect on prices in Russia. Along with this, some importers taking into account dynamic of currencies of other developing countries may increase internal prices beforehand to reduce potential losses from exchange rate differences and this increase will not depend on the real exchange rate."
Belov presumes, "Fluctuations of the exchange rate will result in noticeable growth in costs of imported products and domestic products will become more competitive because of this. In the future it will be possible to expect growth of production and agriculture. Meanwhile, the reverse side of the medal is the fact that growth in prices of foreign products will have negative effect on inflation and living standards of the population will decrease."
Analysts forecast growth of prices for products with fast movement and big import component, for instance, for mobile telephones, automobiles and food. Forecasts of how ruble will behave further are fairly cautious. According to financial ombudsman Pavel Medvedev, it is impossible to draw a forecast for a short term. Medvedev explains, "It is necessary to understand that the Central Bank does interfere into the process, although not to the end. Many factors play at this point, for instance, how big is the boom. It is possible to say that in the middle term ruble will fall if the government does not take measures for improvement of the economic situation."
According to Andrei Cherepanov, it is absolutely useless to compose any forecasts when economic laws are not working. Cherepanov adds, "That is why speaking now how ruble will behave no is idle guessing. This is an absolutely useless occupation."
In turn, Konstantinov admits that ruble may grow stronger to 34 rubles per dollar by march. Afterwards, the national currency will move in the brackets from 33 to 34.-34.5 rubles per dollar.
According to Belov, if we provide an approximate forecast for the period between May and June, bearing in mind the general trend of ruble devaluation towards the currency basket it is possible to say that ruble exchange rate will move towards its historic maximum (36 rubles per dollar) and will not fall below the level of 34 rubles per dollar.

 

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