Russian Ruble Appreciation

By RMStaff

Russia, along with many other countries around the world, is struggling with the Dollar’s decline and local currency gains. Russia has even greater cause for concern because the economy is based so heavily on natural resources including oil, gas, and mineral wealth. As the local Russian Ruble appreciates in value, so the cost of exporting the natural resouces increases.

Natural resource prices have risen since the start of 2009 and inflationary pressure remains high. Such added pressures have also been addressed by the Russian government with a careful balancing act regarding Ruble appreciation.

A recent Bloomberg article supports this above premises on the state of the economy and the Russian Ruble:

IMF Warns on Russia’s Ruble Course

13 November 2009

Bloomberg

Russia’s steps to fight a stronger ruble may “not be productive,” the International Monetary Fund said Thursday, commenting on policy less than a month after the Central Bank said it will use interest rates to cap ruble gains.

“There are changes in the underlying factors that call for a more appreciated exchange rate,” said Odd Per Brekk, the IMF’s senior representative in Russia.

The Central Bank is trying to curb gains in the ruble as investors tap into higher relative returns offered by a 9.5 percent benchmark interest rate and rising commodities prices.

Efforts to curb currency appreciation linked to high rates are “appropriate,” Brekk said, distinguishing between ruble gains based on higher commodities prices and return-driven speculation.

In the long-term it is expected that the Dollar will continue a gradual slide downward. Perhaps Russia should capitalize on the opportunity to increase Russian denominated transactions and contracts while carefully monitoring the ever changing and unstable currency market.

On the other side, Russia can let the Ruble appreciate to help cap inflation. A very tight balancing act is required to achieve the best results.

Published by RMStaff