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21 Dec, 2006 08:15

Stronger rouble benefits some sectors of Russia's economy

Stronger rouble benefits some sectors of Russia's economy

Though Russia's finance minister Alexey Kudrin has criticised the appreciation of rouble as hurting economic growth, some sectors are believed to benefit from this trend.

Speaking about achievements and failures of Russia’s economy in 2006, the finance minister declared the rouble's appreciation the main economic policy failure of the outgoing year.

In 2005 the Russian rouble advanced against a basket of currencies by 10%. In 2006 it grew by another 8.3%.

Kudrin says such levels of rouble appreciation could be tolerated for one year but not for two or three.

He added that if it were to strengthen by 50% within 5 years, it would deal a serious blow to Russia’s economy.

A stronger rouble creates a tough situation for domestic industry, in particular the sectors where there are dollar based revenues and rouble based costs.

Experts say further rouble appreciation will be critical. Several sectors have already seen a negative impact.

“We’re losing our exporting positions, because of imports entering our market quicker and quicker many local producers especially in manufacturing industries. They lose not only local market position but also they can’t export their goods any longer,” warns Yevgeny Nadorshin, the Chief Economist at  Moscow's Trust Bank.

Agriculture is affected the worst. It’s cheaper to buy imported cheese than to produce it.

However, for some sectors the strong rouble is seen as positive thing.

“Consumer goods sector, retail, banking, telecoms where increased trust in the rouble creates the increased demand for rouble and services, especially the banking sector benefits from the stronger rouble,” Peter Westin Chief Economist of MDM bank in Moscow indicates.

A strong rouble also helps Russia curb inflation, by making imports cheaper. But minister Kudrin says the strong rouble is the result of inflation.

In the near future, the Russian government may have to fight both price rises and rouble appreciation.