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10 Nov, 2008 13:47

Rouble tipped for slide of up to 30%

Troika Dialog, one of Russia's largest investment firms, has forecast the Rouble will gradually lose up to 30% of its value. The government is trying to strike a balance between defending the currency from speculation, and stimulating the economy.

The combination of a dramatic drop in oil prices and exodus of foreign capital from the country is draining Russia’s foreign reserves.  In October alone they fell 19%, as the government stepped in to prop up the local currency.  With the global crisis still unfolding, Russia’s state officials have promised to prevent sharp Rouble devaluation.

And ‘Sharp’ means not this year or next year according to Sergey Ignatyev, Head of the Central Bank

“The central bank and the government are not interested in a sharp Rouble devaluation. We have everything we need to prevent it. At the same time I don’t rule out the possible of a more flexible currency exchange rate with a tendency for the Rouble to weaken.”

But just last week, Presidential aide Arkady Dvorkovich said that Russia will reduce its interference and allow a gradual widening of the Rouble's trading band. Troika Dialog Head,  Ruben Vardanyan, has calculated that the Rouble is likely to depreciate by 30% in the event of a devaluation.

“When the price of oil drops from $140 to $60 dollars per barrel, the Rouble just can't remain at the same level. There is a correlation between the oil price, export revenues and State reserves. Thus a possible devaluation is a normal reaction to the current economic reality. So there is nothing wrong with it. The opposite process, Rouble revaluation, also brings risks of damaging domestic production and boosting imports.”

Experts say if the average annual oil price remains above $65 per barrel, Russia will be able to manage its balance of payments while devaluing the Rouble by just 10%.

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