Rouble riding high
For years it was the currency of decline and a symbol of instability. Now, riding high on oil prices and a wave of foreign investment, the once feeble ruble seems to have begun flexing its muscles.
Now you need just over 25 roubles to buy one U.S. dollar, a lot less than you needed just on year ago.
This week the rouble touched its strongest against the dollar since the financial crisis of the late 1990s, which led to the rouble’s collapse.
“In general I think that people who hold roubles denominate the assets, for example Russian equities. Should just hold those stocks right now and wait out this volatility to the end of the year,” observed Eric DePoy, equity strategist of Alfa-Bank.
The increase in the ruble's value is good news for consumers who can buy imported goods more cheaply.
Rouble bank accounts are now the most popular currency amongst Russians – who can build up savings in their own currency without fear of loss.
Ruble-denominated personal savings accounts rose 6.8%in the first quarter of 2007.
Analysts are predicting the upward trend of the currency will continue and advise Russians to buy ruble assets.
“I forecast for the end of the year is rouble 25.6 to the dollar, by the end of this year. It is basically where it is now. Of course we expect some kind of fluctuations between now and the end of the year, that is natural, but a balanced, net result will be basically where it is right now. But in general, you know, we would say buy ruble assets. Again we are looking not towards the end of the year but also towards the first half of next year and after the elections,” added Eric DePoy.
But the strong rouble has a downside. The currency’s being driven up by oil and gas revenues and this could lead investors to neglect other industries, harming growth elsewhere in the economy.
Some of these sectors are already hurting – as the strong rouble makes their exports less competitive.
The government is moderating the impact of the inflow of petrodollars by channeling much of its energy windfall into a Stabilization Fund which already holds more than $US 120 BLN.
And the Central Bank of Russia is walking a fine line by letting the rouble rise to control inflation, while trying not to hurt industry. In the meantime, for consumers at least, the rouble is likely to become a currency choice for both saving and spending.
I think the stronger the rouble the better it is for most Russians. The stronger the rouble the greater the purchasing power of the Russian consumer is, and accordingly the greater the consumer confidence of ordinary Russians and this is what we are seeing. And of course, the stronger the rouble, the more Russians can buy when they go abroad. As we know, Russian tourists are everywhere these days and obviously this is a significant boom for them as well when they go abroad," said Yaroslav Lissovolik, chief economist from the Deutche UFG Group shared with RT his opinion on what this means for the Russian economy.
To read the full version of the interview with Yaroslav Lissovolik please follow the link.