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19 Nov, 2008 11:03

Rouble woes mount as ordinary Russians count the cost

Finance minister Alexey Kudrin says he supports the Central bank's measures to support the Rouble – including broadening the currency band which it trades in. Speculation about the pressure on the Russian currency continues.

Vasily Svetlov took a mortgage denominated in U.S. dollars in January of this year. With the interest rate fixed in the contract the Rouble devaluation is hitting his young family hard.
“When we decided to take mortgage the dollar was 24.5 Roubles, than it went down to 23.5 and we felt euphoria. But now we're already paying over 60 thousand Roubles a month against 51 before. We're worried about the future.”

Since July, the dollar has risen by 4.5 roubles against the Russian currency to reach 27.40 this week  – almost 20% of its value. However, at the same time the Rouble has strengthened against the Euro, the other currency in the basket it is pegged to. So its overall value compared to the basket has remained relatively strong.

In broadening the currency band last Monday, the Central bank effectively admitted the possibility of weakening Rouble against the basket by 1%.  But with the oil prices diving below $50 a barrel, its almost inevitable the Rouble will fall even further according to Chris Weafer, Chief Strategist at Uralsib.

“As oil prices stay low, the cost of defending the Rouble is growing day by day. The problem is that the foreign exchange market now senses weakness on the Government's part and is going to make money betting against the rouble.”

The government is under pressure from exporters, who will gain by a devaluation of the Rouble. At the same time, it has to manage the Rouble's fall to maintain some confidence in the financial system. A slow devaluation seems to be the middle course it has chosen.

Russia has the reserves to handle terms of trade shocks – Kudrin

Financial crisis puts the spotlight on Russian competitiveness

Rouble woes mount as Central Bank defence falters