Economists Expect Ruble Gains

The ruble is expected to strengthen by 0.6 percent by the end of 2008 against the dollar/euro basket, a poll of 10 economists showed Tuesday, suggesting another Central Bank revaluation move this year.

The Central Bank keeps the ruble within a trading band against the basket, made of 55 cents and 45 euro cents. The ruble is under upward pressure from foreign currency inflows and tends to trade on the stronger side of the band.

Economists saw the ruble trading at 29.33 to the basket at the end of 2008, up from the current 29.52 seen by traders as the Central Bank's resistance level and compared with a May forecast of 29.42.

Major international banks advised their clients to take long positions in the ruble, expecting the Central Bank to allow the currency to strengthen to bring inflation, which exceeds 15 percent, closer to the government forecast of 10.5 percent.

The banks expected the ruble to appreciate by up to 8 percent before the end of the year but the expectations have since receded.

"It does not make sense to demand from the Central Bank a guaranteed revaluation of the ruble with a knife to the throat," said Nikolai Kashcheyev, analyst at state-controlled VTB.

The Central Bank has been trying to confuse ruble speculators, saying in May that it plans to widen the trading band and bid at different levels, introducing more short-term volatility to the market.

The Central Bank on June 10 allowed the ruble to strengthen by 0.4 percent compared with the previous day's close in the first deliberate revaluation move in 2008. The market has since found the new Central Bank's resistance level at 29.51.

The Central Bank said more volatility in the exchange rate was part of the transition to an inflation-targeting regime, which will give it more control over inflation through interest rate policy.

Konstantin Korishchenko, deputy chairman of the Central Bank, said last month that the regulator was prepared to widen the band by 5 percent on each side but did not give a time frame for such move.

"We note that a 10 percent expansion is unlikely all to be done by the end of this year, the time frame for this could be as long as several years," said Yaroslav Lissovolik from Deutsche Bank.

Economists raised their inflation forecast for this year to a median of 13.3 percent compared with 12.6 percent last month, a revision that reflected receding expectations of a significant currency appreciation.

"At the current stage, it is obvious that the official consumer price index target is unachievable," Lissovolik said.

Economists also raised the economic growth forecast to a median of 7.8 percent compared with 7.5 percent last month despite some signs of an economic slowdown observed in recent months.

n Widening the ruble's trading band by 10 percent against the dollar/euro basket would probably send the currency higher as record oil prices lure investors to Russian assets, Danske Bank said, Bloomberg reported Tuesday.

This "would almost certainly drive the ruble 5 percent stronger right away and thus be a de facto revaluation," Lars Rasmussen, an emerging-markets analyst at the bank in Copenhagen, said in an interview. "We expect the ruble to gain further strength against its currency basket."