View of the Day: Tough times ahead for rouble

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The best of the rouble’s recent rally seems to have passed – and the currency could drop as much as 15 per cent against its trading basket next year, says Neil Shearing at Capital Economics.

He notes that, since March, the rouble has risen by 15 per cent against its dollar/euro basket, prompting Russia’s central bank to switch from intervening to shore up the currency to stepping in to stem further appreciation.

“The size of the rebound is perhaps surprising given the lingering fragilities in the Russian economy,” Mr Shearing says. “The rally has been driven by developments on the current account side of the balance of payments and, more specifically, by the rebound in oil prices.”

He notes that, in the past, any improvement to the trade surplus from rising oil prices was largely sterilised by the operations of the Oil Stabilisation Fund and had relatively little impact on the exchange rate.

“But things seem to have changed – the authorities have not made any deposits into either the Reserve Fund or the National Welfare Fund since August and thus the rebound in oil exports has led to a rally in the currency – so the prospects for the rouble, for now, are inherently tied to moves in the oil price.

“If our forecast for oil to fall to $50 a barrel by the end of 2010 proves correct, the rouble is likely to test the bottom band of its trading range against the dollar/euro basket.”

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