Experts Are Divided On Ruble Trajectory

MTAs the ruble briefly crossed a Central Bank-set trading band Thursday, a panel of top economic minds debated at a Troika Dialog forum whether the currency would stay at its current level or drop like an anvil.
The ruble will stay at its current level -- or it will drop like an anvil. Gradual devaluations were a brilliant move -- or the height of idiocy.

As the ruble flirted with the 41 level against the dollar/euro basket on Thursday, the only thing a panel of experts at the Russia Forum 2009 could agree on was that predicting the currency's future direction would not be easy.

The ruble slid to as low as 41.0099 against a basket of 55 cents and 45 euro cents, sending it to as low as 36.4 per dollar and 46.7 per euro.

Some felt that the currency's present levels were sustainable, at least in the near term.

"Through the process of gradual devaluation, the ruble is back to where it was in 2004, when the price of oil averaged $37 per barrel," said Martin Gilman, director of the economic policy center at the Higher School of Economics. "That's a pretty fair price."

Gilman said further ruble fluctuations would be tied to the relative strength of the U.S. dollar, the government's future monetary policy and oil prices. Russia's Urals blend crude traded at $43.01 per barrel on Thursday.

"Interest rates have got to rise, holding rubles has got to be desirable," he said. "And if we see the same rates of inflation that we did in January, the real ruble won't hold these levels for long."

Other participants of the five-member panel, however, said the ruble had only one direction to go -- down.

"If you create an easy one-way bet on depreciation, it quickly becomes the investment that everybody wants to get into," said Raghuram Rajan, a professor of finance at the University of Chicago's graduate school of business and economic adviser to the prime minister of India, referring to the government's policy of gradual depreciation.

"The sooner you end this kind of investment opportunity, the better it will be."

Another expert put it even more succinctly.

"Whenever a central bank anywhere in the world has drawn a line in the sand, it has never, ever held," said Jim Rogers, an international investor and co-founder, along with George Soros, of the Quantum Fund. "The market has more money than any central bank."

And at least one panel member scoffed at the entire idea of predicting anything at all.

"Anyone analyzing the ruble based on commodity prices had better wake up," said Nassim Taleb, an author and professor at New York University.

"If someone told you exactly what was going to happen in the world economy a year from now, you still would not be able to forecast commodity prices."

Not to be deterred, however, Rogers ventured one of the more dire predictions of the day in an interview with Bloomberg television.

"I am not optimistic about the continuous stability of Russia," the Singapore-based investor said. "There's a good chance Russia will continue to disintegrate into more than one country."