Russia may devaluate ruble to push its economy and US dollar up

The dollar rate continues to decline in Russia. The US currency set another low yesterday, when it hit the lowest level during the latest eight months. On Monday President Putin said at a meeting with the Cabinet of Ministers that he was concerned with the ongoing strengthening of the Russian ruble. The president urged the government to pay attention to the phenomenon not to ruin positive tendencies in the Russian industry. Putin’s recommendations may push the Central Bank of Russia to support the dollar and bring it back to the level of 26 rubles per one American dollar. At present moment the dollar costs 25 rubles 75 kopeks.

It was not the first time when head of state pays the government’s attention to the growing ruble rate. A year ago Putin ordered the ministers and the Central Bank to strictly observe the competitive ability of Russian producers. Nevertheless, the ruble has become more expensive according to the results of the previous year and gained 17 percent as opposed to the US dollar (5.8 percent vs. the euro). The real cost of the Russian ruble has increased by over 20 percent during the recent two years, experts say. The strengthening of the Russian currency has led to negative results for national processing industries. The situation improved in 2007, but the president still receives numerous petitions from Russian entrepreneurs who complain of the speedy growth of the Russian ruble. It is worthy of note that Putin’s above-mentioned remarks may lead to the resignation of the chairman of the Central Bank.

On the other hand, the Central Bank of Russia may take more decisive measures against the background of Putin’s concerns and take the control of the US dollars in its hands. In this case the Bank will have to buy considerable amounts of the US currency on the market. It is difficult to say how long this mechanism will work. In the long run, the Central Bank may initiate another collapse of the Russian national currency to save the Russian economy. Some experts say that this may happen already in 2009, when the debt of the Russian companies reaches the critical level. This debt currently totals over 160 billion dollars. If it continues to grow, many large Russian companies may fail to execute their obligations (they continue to borrow more and more funds to expand their capacities).

As for the current rate of the US dollar against the euro, it made up the level of 1.35 – the lowest during the recent two years. “The dollar has fallen under the influence of sales on the Asian markets on Tuesday and weakened its positions against the majority of basic competitors,” an expert said.

USA’s recent address to the World Trade Organization has also affected the global position of the American currency. Washington officials have repeatedly expressed their concerns over the pirate market of China. It is an open secret that China has severe copyright problems in the field of intellectual property. The USA is deeply concerned with the reduction of the competitive ability of US products. Analysts say that the USA will most likely have to reduce the interest rate in the nearest future to boost the national economy. However, it will also strike a serious blow on the US dollar. A similar phenomenon may take place in Russia. The government may force the Russian ruble to drop to push the economy further.


Translated by Dmitry Sudakov

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Author`s name Dmitry Sudakov