09.03.09

Banking analysts agree that the drop in the ruble’s rate to the dollar and to the dual currency basket is created by a rise in the dollar-euro exchange rate. Moody’s and Standard & Poor’s rating agencies issued a warning that a slowdown in Eastern European economies, including Russia, may be harsher than expected, and it will have a negative effect on the ratings of local banks. Another criteria contributing to the cheaper ruble rate is a drop in oil prices and that market participants now prefer dealing with foreign currencies.

After the dual currency basket almost reached the upper limit of exchange corridor (41 rubles), speculators lost their interest in the game, and ruble began to strengthen. It may also have been affected by the banks accumulating rubles for VAT payments on February 20th.

Investment banks are not expecting a stronger ruble. Macroeconomic risk is significant, and Russia’s Central Bank (CB) will not be able to hold down the dual currency basket rate below 41 rubles much longer. Not later than the third quarter of 2009, ruble’s devaluation will continue, and, according to analysts of Bank of America – Merill Lynch, by the end of 2009 dollar rate may reach 44.6 rubles. This is part due a strong dollar rate, the risk of crisis to Russia's banking system, a lack of investor appetite for risk and a general decrease in world economies.

Citi offers an almost identical forecast – 44.5 rubles/USD, and 51.1 rubles for euro. Citi analysts presume that the CB will be able to hold the dual currency basket at 38-41 rubles for 1-2 months; during 2009, the ruble will lose 15%, reaching 47.46 rubles for UDS/euro basket.

JPMorgan’s forecast for December 2009 includes 32.6 rubles/USD.

Even if oil holds at $40/barrel, in the second half of 2009, the dollar may rise to 38-39 rubles, making keeping savings in hard currency more assuring, especially in dollars: Eastern Europe runs into an increasing number of problems which affects euro rates, according to United Capital Partners.

For those planning investments for 2009, a senior economist at Alpha-Bank suggests making them in foreign currencies, as ruble will be affected by the budget deficit.

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Source: “Vedomosti”