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Dollar Dips below 26
The U.S. dollar fell below 26 rubles on the Russian currency market for the first time since October 1999 yesterday. This was the result of two simultaneous factors: high interest on the interbank loan market and the weakening of the dollar against the euro on the world market. Analysts expect the Central Bank to continue strengthening the ruble exchange rate to counteract growing inflation risks.
The dollar costs less than 26 rubles on the Russian currency market. Transactions on MICEX yesterday were concluded at a minimum exchange rate of 25.9625 rubles per dollar. At the close of trading, the rate was 25.983 rubles to the dollar. The total volume of trading was $4.3 billion. Sales of the hard currency were accompanied by high interest rates on the interbank market and tax time for Russian enterprises. On top of that, the dollar fell to $1.3411 per euro on the world market. In accordance with the structure of the Central Bank's two-currency basket, the exchange rate of the dollar also dropped below 26 rubles. Those two factors combined to bring the dollar to a seven-year-low in yesterday's trading.
Analysts say the Central Bank will continue strengthening the ruble on the domestic market. They do not expect the expect the structure of the two-currency basket the Bank orients itself to when it sets the exchange rate to change. It now contains $0.50 and ˆ0.50. Alexey Moiseev, deputy head of the analytical department at Renaissance Capital, expects the exchange rate of the ruble in relation to the basket to change, but the exchange rate of the dollar will not change soon – no sooner than the middle of the year.
Analysts identify several factors forcing the Central Bank to raise the exchange rate of the ruble. Natalia Orlova, an analyst at Alfa Bank, has been observing the slow growth of the gold and currency reserves since the beginning of the year. She thought that “It should be taken as a signal that the influx of capital into the country has slowed down.” To revive the process, the ruble has to be made stronger. “By 2009, with current oil prices and import dynamics, the positive trade balance will be exhausted,” Orlova noted. Under those circumstances, the Central Bank will not want to part with its reserves. In addition, Trust Bank analyst Evgeny Nadorshin says, the Bank is still trying to implement an anti-inflation policy. He thinks that the low inflation at the beginning of the year in not indicative and was caused by seasonal factors. “Preliminary indicators for March inflation do not show any slowing in comparison with last year,” Nadorshin said.
The lower dollar will most effect exporting companies, whose expenses are in rubles and proceeds in foreign currency. Companies working on the domestic market note that the stronger ruble either does not effect them or has a positive effect on them. At VimpelCom, they said that the lower dollar rate will not effect income received from subscribers. “Some of our fees are in rubles. To calculations with dollars, we use a fixed rate of 28.7 rubles per dollar,” the company's press service explained to Kommersant. “We do not plan to change that rate in the near future.” Tatyana Sergeeva, deputy general director of Capital Tour, said that “Tours to places where prices are set in dollars – Turkey, Thailand, Egypt and others – will become cheaper.” General director of the X5 Retail Group Lev Khasis found one more positive factor. “Most of X5's debt is in dollars,” he noted. “Therefore, the lowering of the cost of that currency lowers our debt proportionally.”
Head of the financial markets department of MDM Bank Vasily Zablotsky noted that the Central Bank's successful strengthening of the ruble will depend to a large extent on whether or not the raw materials lobby is able to implant the idea in the government that too much strengthening of the ruble is bad for industry and weakens the competitive advantage of Russian products in the world market.
Experts say that transition to ruble prices will not exacerbate inflation. Khasis expressed the opinion that the majority of companies work without strict dollar pricelists. Grigory Poltorak, president of BEST Real Estate, noted that realty companies list prices in dollars only as a guideline. “When the parties agree on a deal, the price is discussed separately and set in rubles,” he said.
Afanasy Sborov
All the Article in Russian as of Mar. 23, 2007
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Photo: Alexander Miridonov
