Translated material
Aggressive currency
Merrill Lynch expects sharp strengthening of ruble exchange rate
By the end of this year, the ruble to dollar exchange rate may reach 22.75, which is 8% higher than the current value of 24.67. This is the forecast of the investment bank Merrill Lynch. Bank analysts believe that the Russian ruble is one of the most undervalued currencies and the aggressive strengthening of its nominal exchange rate is the only effective measure that the authorities will use this year to curb inflation. Analysts from other investment banks interviewed by Vremya Novostei do not share this opinion and, on the contrary, expect the dollar to strengthen against the ruble.As Yulia Tseplyaeva, Merrill Lynch's chief economist for Russia, said yesterday, high inflation remains the main problem of the Russian economy. Last year, as is known, this figure was 11.9% (8.5% was budgeted for). In January of this year alone, inflation amounted to 2.3% (for the same period in 2007 - 1.7%). Merrill Lynch doubts that the government will be able to meet the target price growth target of 8.5%. According to Ms. Tseplyaeva, this year inflation may be double-digit. In order for price growth to be less than 10%, she believes, the government will have to strengthen the nominal exchange rate of the ruble, although “this is not a very popular measure, since an expensive ruble is unprofitable for exporters, and they have strong lobbying capabilities.” According to the economist, “an appreciation of the ruble by three percentage points relative to the dollar will help reduce inflation by one percentage point.”
Other measures to reduce inflation, according to Ms. Tseplyaeva, will either not be used or will not give the desired and quick effect. Thus, it is unlikely that the government will cut budget expenditures now, before the presidential elections. Containing the growth of the money supply can have a positive effect only in the medium term, and, according to Merrill Lynch, this will happen no earlier than the middle of next year. The recently announced decision of the Central Bank to increase the standards for banks' contributions to the financial reserve and to raise all key rates in the money market will not seriously affect the reduction in inflation.
As Merrill Lynch analysts expect, in the first quarter of this year the ruble to dollar exchange rate will be 23.21, in the second quarter - 22.85, in the third - 22.77, and by the end of the year - 22.75 rubles. In 2009, the dollar exchange rate will drop to 20 rubles. In their opinion, this year the American currency will become cheaper on a global scale, its rate will be 1.5-1.55 dollars per euro.
However, the dollar is still growing. Yesterday on the MICEX its rate rose by 14.95 kopecks to 24.67 rubles. The exchange rate of the single European currency decreased by 17 kopecks, to 36.11 rubles. This happened against the backdrop of a fall in the euro on world markets: the dollar rose against the euro by 0.7%, from $1.47 to $1.459.
Analysts from other investment banks interviewed by Vremya Novostei do not share Merrill Lynch's position. In their opinion, in the second half of the year we should expect the dollar to strengthen against both the euro and the ruble. Thus, the chief economist of the Russian Deutsche Bank Yaroslav Lisovolik this year does not expect a significant strengthening of the ruble against the dollar, as well as a weakening of the American currency against the euro: “According to our estimates, the ruble against the dollar by the end of the year will remain at the level of 24.5, and in the world The American currency will cost 1.4 dollars to the euro. The strengthening of the ruble against the bi-currency basket of currencies could amount to two percentage points.”
Alexey Moiseev, an analyst at Renaissance Capital, shares a similar opinion. According to him, this year we should expect a strengthening of the dollar, which will be associated with a likely reduction in rates in Europe: “In Russia, the Central Bank may prevent a noticeable depreciation of the ruble due to its strengthening against the bi-currency basket. Our forecast is 24.9 rubles. per dollar and 34.8 rubles. per euro. The dollar to euro exchange rate is 1.4.”
According to the head of the Russian analytical department of ING Wholesale Banking Stanislav Ponomarenko, the bank does not predict a significant strengthening of the ruble exchange rate against the bi-currency basket. “This is due both to our forecast of the dynamics of dollar and euro quotations on world markets, and to the position of the Central Bank. By the end of the year, we expect the American currency to rise in price against the European one to 1.38. Accordingly, the dollar exchange rate in Russia will be 24.8 rubles, which is higher than current indicators, the euro, on the contrary, will fall in price - to 34.2 rubles,” says Mr. Ponomarenko.
Analysts are also skeptical about the idea of using the strengthening of the ruble to combat rising prices. “We do not expect the Central Bank to resort to exchange rate policy to reduce inflation. It is known from experience that such actions increased speculative sentiment in the market. Investors tried to actively play on exchange rate differences, which put pressure on the ruble exchange rate, and the Central Bank really did not like this, Mr. Ponomarenko believes. “The maximum that, in our opinion, the regulator can do this year is to strengthen the ruble against the bi-currency basket by two percentage points.” The government, according to the newspaper's interlocutors, will fight inflation using other methods: cutting expenses at the end of the year, lowering import tariffs, and controlling prices for certain groups of products, in particular gasoline.