Vedomosti

Ulyukayev

The ruble could surge back to its 2008 highs next year, reaching 23 against the dollar, if oil prices remain high and there is an influx of foreign investment, Deputy Economic Development Minister Andrei Klepach said Wednesday.

But the comments from the ministry’s top forecaster were more of a warning than a prediction. The stronger currency could keep economic growth anemic and threaten the budget with bigger deficits, as exporters’ commodities become more expensive on the global market and taxes paid from their foreign-currency revenue are worth less in ruble terms.

The ruble “may be 26 rubles per dollar, or even 23 or 24, if oil prices are above $80 and there’s a high influx of capital into the country,” Klepach told reporters at a UBS investment forum. But he said he hoped that would not happen, since further strengthening of the ruble to even 26 or 27 rubles per dollar “could be rather dangerous from the economic recovery point of view.”

After spending a third of its foreign currency reserves to orchestrate a gradual devaluation last fall and winter, the Central Bank has been forced again to intervene lately to temper the ruble’s gains. But the regulator has also shifted its focus from the exchange rate to fighting inflation and controlling volatility as part of its ultimate goal of moving to a free float.

Speaking at the same conference, Alexei Ulyukayev, a Central Bank first deputy chairman, suggested that the benefits of a strong ruble could ultimately outweigh the losses incurred to the budget.

“It influences everyone in a different way, there’s no common rule that devaluation is helpful, and revaluation is harmful, or vice versa,” he said. “For those who hold assets in the national currency, the strengthening [of the ruble] is unambiguously helpful, everyone becomes relatively richer and can acquire more goods and services.”

But the budget would be seriously affected, he said. “If the export duty [for natural resources] is nominated in a foreign currency and charged in rubles, one rate would be better for the budget than the other, of course,” Ulyukayev said. “But this is quite secondary, the gains for the real economy — consumers and business — are more important than budget surpluses.”

The ruble has been steadily strengthening against the dollar since mid-August, and was trading at 29.13 in Moscow on Wednesday. The currency closed at a post-default high of 23.14 per dollar on July 14, 2008, and subsequently fell as low as 36.34 on Feb. 17.

Ulyukayev revealed some of the Central Bank’s recent moves to fight volatility, stressing that the regulator was “not defending the exchange rate limit, but is rather targeting inflation and volatility.”

The bank’s current intervention limit is 35.7 rubles to the euro-dollar basket, he said. “In September, the limit was 36.4 rubles, but we’ve gone down 70 kopeks.” The Central Bank has decreased its intervention by 5 kopeks for every $700 million bought.

The rising ruble has been accompanied by upward trends in the economy and a soaring stock market. Klepach, who received a rebuke from Prime Minister Vladimir Putin in December for being first to say the country was in recession, has also had the good fortune of being among the first to announce the nascent recovery.

Speaking to conference delegates earlier Wednesday, he was quite optimistic on the state of the Russian economy, saying GDP could grow by 3 percent to 4 percent in the fourth quarter, compared with the third quarter.

“Of course, monthly estimation of the GDP is more of an exotic methodology … but based on these estimations, we have a 0.6 percent increase in the third quarter compared with the second quarter, and expect a 3 percent to 4 percent boost in the fourth quarter,” he said. “But in 2010, we think the overall growth will be only 1.6 percent.”

The economy grew 5.6 percent in 2008 and by at least 6 percent annually in the preceding five years, and it could be a while yet before Russia sees such paces again. Continued unemployment — nearing the 10 percent mark — the poor situation in retail trade and a crippled credit market will prevent a bigger GDP increase in 2010, he said.

“The potential for unemployment is still big and the retail trade is down 0.8 percent in September compared with August,” he said. “The amount of banking loans, in real terms, is still going down. We expect slight growth in 2010, but it would be still difficult to switch to steady growth next year.”

If oil prices continue to grow, they could automatically add 0.5 percent to 0.8 percent to the annual GDP growth figure next year, he said, without specifying how much oil would need to rise.

Speaking on the support provided to the banking sector, Ulyukayev said the Central Bank would continue to decrease the refinancing rate “even though, we already lowered it by 3 percentage points.” Currently at 10 percent, the refinancing rate has been cut seven times since April, which the government hopes will bring down lending rates

Ulyukayev also commented on the government’s official 11.6 percent inflation forecast for this year, saying the figure now looked rather pessimistic.

“We believe that we may have 11 or even 10 percent inflation,” he said. “We’ve had a historically lowest zero-inflation period since July.” On Tuesday, Ulyukayev said he expected 10.3 percent inflation for 2009.

Although the economy was hard-hit at the start of the recession, it will be in a more favorable condition during the recovery, he said.

“Most governments are now seeking a balance to both cover budget deficits and increase the refinancing rate, but you know that both measures reduce liquidity,” said Ulyukayev, one of the bank’s three first deputy chairmen. “We will be able to cut the budget deficit and still continue to lower the refinancing rate.”

He estimated that GDP could grow by 2 percent to 4.5 percent in 2010, while the trade surplus would near $100 billion.

Russia’s trade surplus has fallen 53 percent in the first eight months of the year to $65.1 billion, compared with $138.4 billion for the same period of 2008, the State Statistics Service reported earlier this month.

Kremlin economic aide Arkady Dvorkovich, who also spoke during the conference, called on the delegates to contribute to President Dmitry Medvedev’s annual state-of-the-nation address, saying, “if these suggestions are made, they may be applied in practice.”

Medvedev, who has already received more than 13,000 letters for his article “Go Russia!”, which will serve as a framework for the address, said he would welcome suggestions for the speech, which he is to deliver to the Federal Assembly by the end of the month or in early November.

Dvorkovich praised the call for input as an example of transparency, saying Russian authorities “have become more open, and there will be no return to the previous secrecy.”

As president, Prime Minister Vladimir Putin’s addresses were prepared in secret and came as a surprise to the public.