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End in Sight for Ruble Strengthening

February 14, 2008 | www.kommersant.com

The real effective rate of the ruble has risen by about 1.5 percent since the beginning of the year. Financial indicators, such as non-deliverable forwards rates, show that investors do not expect further ruble growth. Deputy Chairman of the Central Bank of Russia Alexey Ulyukaev confirmed that in an interview with Prime TASS yesterday when he said that the Bank would not use further strengthening of the ruble to fight inflation in the first half of the year, but other methods.
Ulyukaev outlined a scenario in which the influx of capital is relatively weak in the first half of the year, while it may increase to $40 billion in the second half. The potential shortage of liquidity will be handled through refinancing. The growth of the money mass M2 will slow, although it will remain rather high all year. April will be a key month in the Bank's plans.

The Bank is not prepared to say whether a wave of capital will hit Russia in the second half of the year as it did at the beginning of 2007, but it is not planning to strengthen the ruble then either. The M2 money mass is planned to increase by about 40 percent annually. It has reached 47 percent annually on February 10. The Central Bank expects some Russian borrowers abroad not to refinance their debt domestically because of rising interest rates.

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