Yana Galukhina and Alexander Ivanter

The dollar/ruble exchange rate has dropped by 2% to 28.87 rubles per dollar since the beginning of 2004. The loss of 58 kopecks has thrown the US currency back to spring 2001 levels. On the world markets, the dollar/euro exchange rate fell by 2.1% over the first two weeks of this year. “Obviously the dollar/ruble exchange rate reflects the situation on the world currency markets. The ruble is becoming stronger versus the dollar when the dollar/euro exchange rate is going down,” comments Anton Struchenevsky, an economist with the investment company Troika Dialog. Some European officials have voiced their concern about the drastic rise of the euro, and in the last two days the dollar regained 0.6% from the euro. Currency sales on the Russian market have also been on the wane, and the US currency exchange rate has stabilized at around 28.85-28.9 rubles per dollar. Average daily trading volume has fallen by more than half compared to the first week of this year.
“The oil dollars are just pouring in. This trend will continue until oil prices begin to go down,” believes Vladislav Bogatyrev, Deputy Head of the Financial Transactions Department at Probusinessbank. Capital inflow also leads to a stronger ruble. According to the Central Bank’s preliminary estimates, the net import of capital in the fourth quarter of 2003 totalled $2.5 billion. Vladimir Oreshkin, an economist with United Financial Group (UFG), points to the increase in the supply of the US currency due to Russian banks’ euro bonds placements. The adverse impact of the stronger national currency is partly offset due to the rise of the euro exchange rate. “Last year, strengthening of the ruble against the dollar amounted to 20% in real terms, whereas the effective rate of the ruble [compared to the currency basket – Expert] only rose by 5%,” Anton Struchevesky explains. “The Central Bank is trying to keep the economy competitive and, accordingly, maintain the dollar exchange rate versus the currency basket,” believes Oreshkin. “Since Europe is our main trading partner, from the point of view of the competitiveness of domestic producers, it is more important to us to maintain the ruble/euro exchange rate rather than the ruble/dollar one.”
At the same time, rapid strengthening of the ruble versus the dollar has had an adverse impact on hard currency earnings of Russian exporters. Raw materials export, which is traditionally paid for in dollars irrespective of the country of destination, has made exchange losses inevitable. According to estimates from the Center for Macroeconomic Analysis and Short-Term Forecasting, average export prices increased by 10% last year (and oil prices by 15%), which meant $12 billion more revenues for Russian exporters. $8-9 billion, however, were eaten up by the exchange rate difference (the dollar’s decline versus the ruble). In cases of financial arbitration, which takes into account the difference in interest rates on dollar and ruble assets, the stronger ruble has benefited Russian market players. If an investor borrows funds at the minimum interest rate in dollars, which get cheaper versus the ruble, converts them into rubles, and buys ruble assets (loans, deposits, or bonds), one ends up with quite a good yield.
On the MICEX, US currency futures with a February-March execution date are selling for 28.8 rubles per dollar. This partly reflects investor anticipation of a smooth rise for the ruble. Most analysts predict that the US currency will be valued at 27.5-28.0 rubles per dollar. “The dollar will continue to fall versus the euro, since the US stands to profit from a weaker dollar for the time being. Furthermore, world agencies are upgrading their oil price forecasts, linked to high demand and low crude reserves,” comments Denis Nushtayev, an analyst with Metropol Investment Company. “Considerable surplus on current accounts as well as the influx of investments – all these factors working in the ruble’s favor,” argues Alexei Moiseyev, Vice-President of the Analytical Department at the Renaissance Capital Investment Group. Not all analysts share this opinion, however. “Assuming that the average annual price for oil is forecast at $24, the dollar may be stronger in nominal terms late next year,” says Oreshkin from UFG.
Russia’s budget for 2004, approved by the parliament and the president, had been made on the assumption that the average annual exchange rate would be 31.9 rubles per dollar (this rate is already about 10% off). This means that actual budget revenues from foreign trade (export and import duties) will be lower than estimated, whereas the influence of the exchange rate difference on expenditures is much less clear (a considerable part of foreign debt is nominated and serviced in euros, now growing expensive versus the ruble). This may result in the government’s failure to attain the planned budget surplus of 0.6% of GDP.

In the last two years, the ruble exchange rate versus the currency basket as a whole has remained unchanged

	2001	2001	2003
Growth of the ruble exchange rate (%) Nominal exchange rate of the ruble versus the US dollar	93,4	94,8	108,7
Real exchange rate of the ruble versus the US dollar	107,8	107,3	120,4
Effective ruble exchange rate (versus the basket of currencies from Russia’s main trading partners)	107,3	95,4	105,0

Source: Center for Macroeconomic Analysis and Short-Term Forecasting

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