| The dollar no longer has a competitive advantage against the euro and is becoming cheaper Vladimir Putin's constant complaints against the government for its failure to curb inflation (see page 1) are forcing the Central Bank to strengthen the national currency at a faster pace. The dollar exchange rate against the ruble has already reached a monthly minimum of 27.88 rubles. for a dollar. So market participants strongly recommend that citizens who receive salaries in dollars or keep their savings in dollars finally get used to the prolonged depreciation of the American currency and not have any special illusions about the possible strengthening of the dollar.
The significant strengthening of the ruble, according to MDM Bank trader Pyotr Neymyshev, is associated not so much with the weakening position of the American currency on world markets, but with the actions of the Russian Central Bank. “The Bank of Russia is weakening the bi-currency basket. By strengthening the ruble at a faster pace than before, the Central Bank apparently expects to slightly reduce the rate of inflation (according to Rosstat, for two months of 2006, inflation growth was 4.1%. - Ed. ) - at least prices for imported goods will decline. However, we will be able to feel the effect of the current actions of the Central Bank no earlier than in two or three months.”
The dollar will also fall against world currencies - both Russian and Western economists are confident of this. “Over the past few years, the world economy has been gradually moving away from the “single-currency” world; the main competitor for the dollar has become the euro, as well as some Asian currencies,” notes Yaroslav Lisovolik, chief economist at the investment bank Deutsche UFG. “The share of the euro in countries’ gold and foreign exchange reserves is gradually increasing.”
At the same time, according to the Basel Bank for International Settlements, the market is seeing a return of interest in the American currency from the countries of the largest oil exporters. OPEC countries keep two thirds of their deposits in international banks in dollars. Just two years ago, the dollar component of OPEC countries' deposits was 61%. However, Russian experts consider this trend to be temporary. “Last year, due to higher rates in the United States than in the eurozone, investments in dollars were indeed more profitable,” notes Mr. Neymyshev. -- High demand for the American currency is reflected in its quotes against the euro. In January 2005, the euro was worth $1.36, and at the end of December - only $1.18. Now the situation is completely different: the potential for raising rates in the United States has practically been exhausted - the market is waiting for one more, or at most two, positive decisions from the Fed, while in the eurozone rates will rise. Consequently, investing in dollars is not as profitable as last year.”
Mr. Lisovolik shares a similar opinion: “In 2005, the growth of investments in euros slowed down a bit. But this was a temporary phenomenon. The share of the euro will still grow. Accordingly, the demand for dollars will decrease.” Theoretically, we can expect a slight strengthening of the dollar if the market receives a signal from the Fed that it is ready to raise the discount rate to 5.25% per annum (it is currently at the level of 4.5% per annum and has so far been increased by 0.25 percentage points quarterly ), he says, but at the same time expects that by the end of the year it can increase to a maximum of 5% per annum. In this case, according to Mr. Lisovolik, we can expect the dollar exchange rate to strengthen to 28.1--28.2 rubles. for a dollar. Until the end of March, he believes, currency quotes will fluctuate slightly around the level of 27.9--28.0 rubles. for a dollar. Natalia ROMANOVA |
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