Bank of Moscow building and signboard of exchange.
Photo: Êèðèëë Òóëèí
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Bank of Russia Continues to Strengthen Ruble
Yesterday saw several new records on the currency markets. The ruble crossed the 25 rubles/$ marker for the first time in eight years. The euro for the first time in history cost $1.413. The bicurrency basket approached the hypothetical “support level” for the first time. Economists say the situation is unclear and disagree in their prognosis for the future.
Yesterday the dollar dropped below the 25 ruble/$ mark on the Moscow Interbank Currency Exchange (MICEX) for the first time in eight years. The Central Bank’s rate today was set slightly above the symbolic level: 25.0062 rubles to the dollar. “The ruble is not the only currency to be rising against a falling dollar. Other currencies, including those in developing countries, are rising as well,” Rory MacFarquhar of Goldman Sachs said. Yesterday the dollar fell to a historical low against the euro: 1.413 $/euro. There is a good chance that the ruble will cross the 25 ruble/$ line today.
The ruble set another record yesterday against the bicurrency basket ($0.55+ Euro0.45). This is the maximum level that it’s reached since the Bank of Russia began using it as a reference point at the beginning of 2005. The currency basket had never before dropped below 29.66 rubles, but yesterday it hit 29.64 rubles.
Before the end of June 2007 the bicurrency basket’s exchange rate would see a spurt once every couple of months, usually about 0.5%. Then over the course of a couple weeks it would stabilize and not fluctuate more than 2-3 kopeks, or 0.1%. After June 26 the amplitude of these fluctuations rose to about 30 kopeks, or 1%. Although the Central Bank has never officially announced a new currency corridor, several private investment banks (such as ING Russia) describe it as an intentionally unofficial currency policy of the Bank of Russia.
Kommersant has written before that the most likely and widespread interpretation of the growth of volatility on the currency market is an effort by the Central Bank to limit the inflow of speculative capital into the country.
The exchange rate used during trade on MICEX is indicative of the lower limit of this new corridor. Currency traders have already confirmed for Kommersant that the support level is between 29.61 and 29.62 rubles. That is that level that the Central Bank begins buying currency for sale. Here there is no need for official confirmation.
In other words it is not yet clear whether this is another step in strengthening the ruble or just a fluctuation inside an unannounced corridor. If in the coming days we see the ruble going outside this corridor it may mean that the Central Bank has once again taken to fighting inflation. Yaroslav Lisovolik of Deutsche Bank states that inflation exceeding 9% is not politically acceptable. This year prices have already risen 8.6%. If not, it will go to show that fears of rapid import growth and decreasing industrial competitiveness have taken the upper hand.
It may also be that the Central Bank feels that the ruble lack liquidity on the Russian market. The size of direct REPO operations at the Central Bank yesterday was 48 billion rubles, which is considerably higher than the previous few days, and the rates of interbank lending MIBOR were at 7.53%-7.84% depending on the term of the loan. An influx of capital, growing on the expectations of a strengthening ruble, could solve the problem of illiquidity.
Economists surveyed by Kommersant disagreed about a potential strengthening of the ruble. MacFarquhar called the currency rate and liquidity situations “extremely unclear.” Lisovolik sees the ruble growing “about” 1% against the bicurrency basket by the end of 2007. Anton Struchenevsky of Troika Dialogue says that there is “little” potential for the ruble to grow considering the trade balance. Natalya Orlova of Alfa-Bank also said that, because of the trade balance, “if oil prices grow it will reflect well on the trade balance.” In her opinion it could lead to “a further strengthening of the Russian currency.”
Maksim Shishkin, Nailya Asker-zade
All the Article in Russian as of Sep. 25, 2007
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