January 18, 2005, 10:26 Business

Citizens handed over currency

Ekaterina Gerashchenko By the end of 2004, Russians' demand for foreign currency fell noticeably: according to the Central Bank of the Russian Federation, a record volume of foreign currency was sold in November. Among the reasons are Russians’ lack of confidence in the stability of the dollar, New Year’s spending, and excess foreign currency imported into the country during the summer banking crisis.

Data published on Monday by the Russian Central Bank in its monthly review of currency movements shows that Russians sold a record amount of foreign currency in November last year. “The sharp depreciation of the US dollar against the ruble in November 2004 led to an uncharacteristic for this month significant increase in the supply of cash American currency,” the review says.

According to the Central Bank, $2.898 billion worth of foreign currency was purchased in November 2004. This is the minimum figure for the year. For comparison: $3.183 billion was purchased in October, and in July, at the time of the crisis in the banking market, $3.670 billion was purchased. $2.380 billion were sold in November ($1.740 billion in October and $1.571 billion in July).

Anton Struchenevsky , an economist at Troika Dialog, believes that interest in the dollar has fallen amid the fall in the value of the American currency against the euro on the foreign market. And opening ruble deposits is a normal reaction of consumers to the decrease in the purchasing power of the dollar. However, many banks have already responded to the situation by opening multi-currency deposits.

Interfintrade Investment Company believes that the fall in the exchange rate of the American currency began in the second half of October 2004, that is, it coincided with the pre-holiday increase in consumer activity, when even those who always keep their savings only in them sold dollars. At the end of the year, citizens traditionally buy vacation vouchers, gifts, and also pay taxes, but this year they clearly spent more than in previous years, which cannot but spur inflation, analysts say. It is necessary to make an adjustment for the seasonal factor, according to Interfintrade, so it is not entirely correct to talk about a fundamental loss of interest among Russians in the dollar.

This opinion contradicts statistical data. According to the Central Bank, Russians' demand for the currency fell steadily between August and October after setting a multi-year record in July. The supply grew at the same time.

And this is due not only to the fall in the dollar/euro exchange rate, but also to the record amount of cash dollars that were brought into the country during the summer crisis to satisfy the rush demand for currency from worried depositors.

The fall in the dollar exchange rate has caused significant harm to individuals who keep their savings in dollars, FC Uralsib is confident. But already at the beginning of 2005, the situation changed, an increase in the exchange rate of 5-6% was noted, analysts explained.

Whether Russians' confidence in the American currency will be restored will depend on the relationship between the dollar and the euro.

comments on the fundamental policy of the US Federal Reserve System Senior economist at Uralsib FC Vladimir Tikhomirov of raising interest rates . If the interest rate is raised by 0.5% in the near future, the rate in February 2005 may fluctuate between 28.20 and 28.50 rubles per dollar. If the rate does not change or increases by the usual 0.25%, the rate will be lower – 27.70–27.90 rubles per dollar.

Interfintrade Investment Company analyst Alexey Logvin does not exclude that during the year the dollar may fall even lower, to 27.5 rubles. The expected exchange rate in February is 27.70 rubles per dollar.