Demising US dollar will not crush Russian economy in 2005

Spokespeople for the Russian central Bank do not recommend to get rid of dollars
First deputy chairman of the Russian Central Bank, Aleksey Ulukaev, presented his view of Russia's financial future at a press conference yesterday. According to Ulukaev, there are certain fundamental reasons for the US dollar to decline, that is why the American currency continues its reduction not only against the Russian ruble, but also against other world currencies. The Russian Central Bank believes that such reasons include the extremely low deficit of the budget and the trade balance of the United States, as well as the low norm of dollar savings.

The Central Bank spokesman did not give any forecasts of the nominal ruble rate vs. the dollar, although the official expressed his doubts regarding a possible reduction to the level of 24 rubles per one American dollar in 2005 (the current rate is about 28 rubles per dollar). However, the real ruble rate will gain five-six percent next year. The ruble has become 4.8 percent more expensive in 2004: the Central Bank is certain that it will be possible to reach the scheduled limit of seven percent until the end of the year.

A nine percent growth will be a critical level for the Russian ruble. The Central Bank does not see any threat for the Russian economy, Ulukaev stated. On the one hand, the weak dollar will cause damage to exporters, whose contracts are valued in US dollars. On the other hand, Russian enterprises will be able to purchase foreign equipment on much better terms.

On the whole, the Russian economy will become less competitive in a short-term perspective. The net outflow of capital will reach nine billion dollars in 2005 as opposed to $12 billion as a result of the current year.

Aleksey Ulukaev said that the Russian ruble would become fully convertible in 2007. The Central Bank will be decreasing its currency interventions before this year: the bank will not be purchasing US dollars as actively as it does now.

The dollar demise will not exert any influence on the majority of people. “There will be no collapse. If people decide to convert their dollar savings, they will lose as much money as they would probably gain on the exchange rate difference, the banker said.

Russian people are rather conservative when it comes to their savings. However, Ulukaev believes, a certain part of the population will hurry to exchange their dollars because of the continuing slide of the American currency. Yet, Russians will hardly exchange more than one or two billion dollars in the near future.

One should not get rid of the American dollar so far – the financial authorities do not foresee a sudden collapse of it. A currency exchange will bring only losses to those, who have several hundreds or even thousands of dollars in their savings: no one knows if the losses can be compensated later. The American currency, however, will continue its slow reduction, that is why it would be good for the owners of large dollar amounts to convert their money in either rubles or euros.

According to the Central Bank, the inflation rate in Russia will be normal in 2005. The rate will exceed the ten percent limit by one point as a result of 2004 on account of the growing prices on petrol, meat and crops. The price rise on meat and crops will only last for a certain period of time, and these factors will not work in 2005. That is why, Aleksey Ulukaev believes, the inflation rate will reach 8.5 percent.

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Author`s name Olga Savka