Merrill Sees Big Ruble Gain in Q1

Merrill Lynch on Wednesday advised clients to buy the ruble against the dollar on speculation that the government will let the currency strengthen to slow inflation.

The ruble will gain 6.4 percent to 23.21 rubles per dollar by the end of the first quarter, Merrill said in a research report.

Merrill's outlook for the ruble is the most bullish of 18 currency forecasts compiled by Bloomberg.

"The aggressive strengthening of the ruble is a necessary condition if the government wants to lower inflation to 9 percent or 10 percent," Yulia Tseplyayeva, Merrill's chief Russia economist, told reporters in Moscow on Wednesday.

The inflation rate in the year through January was 12.6 percent, the highest in 30 months.

Consumer prices rose 11.9 percent last year, exceeding the government's target of 8 percent.

The government's inflation goal of 8.5 percent for this year is "unrealistic," Tseplyayeva said.

Merrill expects the ruble to rise to 20 to the dollar in the third quarter of 2009, which would be a gain of 23 percent from today.

Money managers at Merrill are telling clients to sell dollars and pounds and buy currencies including the ruble, Turkish lira and Polish zloty, said Gary Dugan, chief investment officer of Merrill Lynch Global Wealth Management for Europe, the Middle East and Africa.

"We prefer a basket of Eastern European currencies against sterling and the dollar," Dugan said in Moscow on Wednesday.