The US dollar rate has been declining in Russia since January 9, 2003. At the time, the dollar traded at R31.88. Although the dollar rate has hovered at around R27 in June, analysts from the UBS and DEUTSCHE UFG banks predict that its further decline is unavoidable over the medium term. Both banks have just revised their forecasts for the dollar rate’s movement. UBS predicts that the dollar will slide to R25.5 by the year-end, and to further to R24 by the end of next year, reacting to the early liberalization of Russia’s foreign exchange legislation. The dollar is also forecast to lose ground against the euro, to $1.3 towards the year-end (the rate now corresponds to R26.5/$) and $1.4 by the end of 2007. DEUTSCHE UFG analysts have revised their forecasts on other grounds. They now believe that oil prices will rise more steeply in the long and short terms than previously thought, contributing to the strengthening of the real effective rouble rate. Monetary authorities will thus face the problem of either strengthening the rouble or letting inflation accelerate. Given the looming presidential elections in 2008, the government and the Central Bank will prefer to contain inflation, analysts said. The dollar, therefore, will depreciate to R25.35 by the end of 2007, go further down to below R25 in 2008 and may even fall to R23.5 in the long term. Officials disagree with investment banks’ forecasts, expecting the dollar to trade for R26 to R27 for the next three years.
Source: VEDOMOSTI, June 27, 2006
