The Russian rouble ended its most volatile year this decade broadly stable, confounding forecasts of a sharp slump and portending gains in early 2010 should oil prices stay strong and interest in riskier currencies continue.
The rouble closed 2009 at 36.18 against a basket of currencies, slightly weaker than its year-ago close of 35.80, but much stronger than some initial expectations that the currency might fall to as much as 50.00 versus the basket.
A rebound in the price of oil, Russia’s key export commodity and a good indicator of the rouble’s strength, plus renewed investor interest in higher-yielding assets have lifted the currency from early-year lows of almost 41.00 versus the basket.
A revival in global demand and increased optimism of a recovery in financial markets, as well as the relatively strong state of Russia’s current account, should support the rouble’s rise, economists said.
“We expect upward pressures on the rouble to return in the second half of January,” Sergei Voloboyev, analyst with Credit Suisse in London, said in a note.
Few analysts expect the rouble’s transition to a free floating regime next year. Prime Minister Vladimir Putin said on Tuesday Russia’s commodity-dependent economy was not ready for the switch, saying the process would be gradual.
But some economists warned against excessive optimism, noting that the rouble is trading close to the lower end of its floating corridor of between 35 and 38 roubles against the dollar-euro basket the central bank uses as a guide for the currency’s nominal exchange rate.
“This means that easy wins in the rouble are over and we need higher oil or another wave of capital inflows to push the currency stronger,” VTB Capital Senior Economist Alexandra Yevtifyeva said.
EXTERNAL FACTORS
External factors were likely to remain the chief dictators of the rouble’s fate in coming months, economists said.
“Influence on those factors from the Russian government is fairly limited,” analysts at Bank Zenit wrote in a note.
The renewal in autumn of interest in riskier emerging market assets have resulted in return of inflows of “hot money”, with which Russia has had a love-hate relationship.
The central bank’s purchases on the forex market, aimed at keeping the rouble’s rise gradual, came to nearly $30 billion in September-November as the rouble firmed as far as 35.10 against the basket, prompting increasing talk on the re-introduction of capital controls.
Russia lifted restrictions on capital flows in 2006, opening the door to massive inflows of short-term speculative capital that contributed to an economic boom but also inflated corporate debt to $450 billion in 2008.
Putin pledged on Tuesday to boost efforts curbing speculative capital, though said there would be no “revolution”. Economists see it unlikely that Russia will introduce Brazilian-style tax on capital inflows.
Still, some moves might be expected from the central bank.
“Assuming oil prices remain elevated, certain policy measures discouraging capital inflows could become inevitable in order to stem renewed strengthening of the currency,” Voloboyev said.
In the longer term, investors see the rouble broadly stable, with non-deliverable forward (NDF) contracts showing the currency at 32.05 per dollar in 12 months.
The rouble closed the year at 30.29 versus the dollar, slightly stronger than 31.05 at beginning of the year.
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