1. What will happen with the ruble exchange rate?

In our forecast for August we pointed out that this month the Central Bank will pursue its policy of the strong national currency, so the dollar won’t fall under 23.6 rubles. But we underestimated the disappointment of the foreign investors at Russia: on August 28 the official dollar exchange rate was 24.6 rubles.

It’s not that the Central Bank ceased to pursue its policy of the strong national currency. It still doesn’t want to be accused of failing the Russian anti-inflationary plan. And, to combat the inflation, it’s necessary to let the ruble get stronger, according to the Russian government (and the IMF too). More to the point, the Central Bank least wants Russia to have a currency instability coupled with its utter prices instability.

In truth, with Russian stocks plummeting and funds flowing out from the stock market, the Central Bank doesn’t want those becoming disappointed in Russia (and the Russian ruble) get dollars at a cheap. At the same time, the Central Bank didn’t let the exchange rate go down showing that it has enough currency reserves to launch dollar interventions to back the ruble’s exchange rate. So, the ruble was both strong and controlled in August.

Our forecast: In September the Central bank will continue demonstrating that it controls the dollar exchange rate, which won’t exceed the 25-ruble mark.

2. What will happen with pries in Russia?

As we predicted in our forecast for August, despite the fact that prices didn’t grow in July during a week, the inflation in August won’t be zero, although it will be quite low. The forecast was correct: By August 25 the growth of consumer prices was 0.2% compared with the beginning of the month.

So, prices have increased by 9.5% since the beginning of the year. Taking into consideration that the new official inflation prognosis is 11.8% and there is four months left, the inflation is to be under 2.3%. It’ll be very difficult to achieve it.

The government reiterates that the control of the consumer prices growth is the key objective of the economic policy. To reach it, it is ready to apply all possible measures, including those administrative. Nevertheless, businessmen won’t give it up either. They have already got used to prices going up. Why should they stop increasing them? Moreover, you could not perceive the country flourishing in August: the Russian stock market fell, the dollar exchange rate grew. You are virtually made to increase prices in such a nervous atmosphere. Even more so you can refer to the foreign currency becoming more expensive and apply this argument both to foreign and domestic goods. The sentiments of Russian consumers also play in the hand of the prices growth: people will always spend money on something.

Our prognosis: Regardless of the government’s resolute statements, the inflation inertia is so that in September the growth of consumer prices will be over 0.5%.

3. What will happen with the world oil prices?

In our prognosis for August we pointed out that the speculators in the world oil market will keep on “having fun” playing for the rise and for the fall, but the price won’t be over $140 per barrel. The forecast was correct. In August prices dropped mainly. The retreat to the record $147 per barrel, which was reached on July 11, continued. However, by the end of the month prices started growing sharply – by August 27 they had hit the $120 mark.

There was a major reason for the increase in prices – fears of the Gustav hurricane in the Gulf of Mexico. Indeed, the season of hurricanes is close, and brokers are taking advantage of it. Still, they can use non-natural factors to play for the rise: there is military and political instability in the world.

On the other hand, purely economic circumstances dispose to playing for the fall. The obvious recession in the USA and in the Euro-zone, which turns into stagnation, ensues reduction in demand for oil. The dollar doesn’t appear that weak, and oil producers and speculators have got accustomed to explaining the growth in oil prices with the dollar’s getting cheaper and vice versa.

All in all, speculators have a plenty of opportunities to do whatever they want. But it is clear that investment and pension funds, which are the key elements of the modern oil market, are not going to take the invested money away from this market, and they will want to play for the rise.

Our forecast: Investment and pension funds would like to avoid a further rapid decrease in oil prices, so, in September it will cost more than $110 per barrel.

4. What will happen with the dollar exchange rate?

We predicted that in August speculators will get tired of July’s play (when the euro first got very expensive and then started falling quickly), and in August the euro won’t be under $1.54. But we underestimated the speculators; they didn’t get tired, and the dollar was getting stronger in August. On August 28, you could get $1.48 for the European currency bill.

Speculators paid much attention to the world oil prices primarily. In fact, they are guided b y the belief that the dollar exchange rate and the oil price move in opposite directions. They have different explanations of this dependence. For example, the following: oil exporters get so many dollars when prices grow at a record pace that they try to diversify their currency reserves and but euros. Or you can hear that, with the dollar falling, speculators don’t know what to play for and buy up oil futures causing an increase in their price. But, whatever the explanation, it’s the reality.

Speculators used another favorite theory of theirs: currencies’ exchange rates must be determined by the difference in interest rates in different countries. Presuming that because of the unfavorable situation in the Euro-zone and in Great Britain the Central Banks of those countries would have to lower the interest rates to encourage business activity, speculators started selling euros and pounds purchasing dollars instead.

Our forecast: In September speculators will least expect interest rates lowering in the Euro-zone and a fall in oil prices, so, the euro will cost more than $1.45.