Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Analysts Have Faith In Ruble

The Russian ruble inched up another three points against the dollar Tuesday continuing its steady rise over the past four weeks and giving Russian economists cause to think the increases could be for real.

Boris Raizberg, an economist with the Russian government's Center for Economic Reform, said Tuesday that the exchange rate is overstated by three times and predicted that the ruble would continue to rise against dollar if the government and the Central Bank keep up with the tight monetary policy.

"It is quite possible to maintain the current rate for as long as six months", said Raizberg. "And with the current level of inflation by the end of this term we will have a real exchange rate", he said. He said the inflation rate was 18 percent in June, according to the Center for Economic Reform, down from more than 20 percent in May.

Raizberg said the purchasing power of the ruble compared with the dollar suggests an exchange rate of 300 to 1.

The ruble strengthened to 1, 036 to the dollar in trading Tuesday, up from 1, 039 the previous day. About $67 million changed hands. The currency has been rising since mid-June, when it hit its low of 1, 116.

On Monday, Finance Minister Boris Fyodorov offered to bet $50 that the ruble would remain stable at least through Sept. 1. Nikolai Gusev, an analyst with the Moscow Interbank Currency Exchange said such statements have a psychological impact.

"When Fyodorov offers to bet money on the stability of the ruble people know that the Central Bank is capable of supporting this trend", Gusev said.

He agreed that the government and the Central Bank's tighter monetary policy is a key factor in the ruble's stability. But he was skeptical that the policy could be maintained and doubted the future strength of the currency.

"As soon as the government issues new credits the rate will jump up", he said. The government will have to give the money to struggling industries sooner rather than later, he said.

"It is a matter of how much rather than if", he said. "With the amounts of subsidies industries demand, it might be trillions of rubles and, if it happens, we might soon see the rate at 5, 000 rubles per dollar".

He said, the main reason for the ruble's stabilization against dollar is a ruble hunger in Russia, which began when the government clamped down on its credit policy in December. He said the Russian enterprises and regions lack rubles to pay costs as prices continue to rise. There are also "seasonal reasons", he said. For example, now is the time to pay mid-year taxes.

Gusev said the growing currency supply at the exchange was another reason for the ruble's rise. The dollar supply has been on the increase since enterprises were relieved of compulsory sales of 30 percent of their hard-currency earnings to the Central Bank.