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14 Jul, 2009 18:08

Rouble returns to spotlight

The Rouble has made its greatest gains against the dollar since March after 8 days of consecutive falls against the Central Bank's target rate and capital outflows from the country.

A weaker rouble should make Russian exports cheaper – boosting volumes. But exports dropped by a third in the first half of this year – measured in rouble terms – while producer prices are up 10% due to the cost of oil and petroleum products

Yaroslav Lissovolk, Chief Economist, Deutsche Bank Russia says the weaker Rouble hasn’t led to the expected benefits.

“It is believed, the weaker the rouble, the broader the scope for sectors competing with imports to grow in the Russian economy. And for the authorities, through the weaker rouble, to foster import substitution. However, the truth of the matter is that we haven't seen much of a response even though it's been depreciated very sizably.”

Analysts warn there are limits to how much a weaker rouble can help domestic producers compete. Imports still account for more than a third of the overall consumer basket.

With a positive trade balance and current oil prices, Arkady Dvorkovich, Presidential Aide says further devaluation of the rouble is not likely in the near term.

“Rouble stability depends on the stability of the Russian economy and the state of the balance of payments. We believe it's not a necessity now to devalue the rouble, given the positive trade balance. If conditions change, some movements are possible, but not radical ones.”

With imports so dominant – the spending power of consumers actually goes up when the rouble strengthens. As it's fallen 30 % over the past 12 months – it's no surprise that sectors from retailing to banking and telecommunications – are suffering.