Analysts Don’t See Rate Fluctuation as Danger

Analysts Don’t See Rate Fluctuation as Danger

Published: June 21, 2012 (Issue # 1713)

Local financial analysts are encouraging people not to worry about the recent fluctuation in exchange rates caused by the Eurozone crisis.

“In terms of [financial] safety, it’s better to do nothing now and wait until next year,” said Spartak Sobolev, an analyst from ForexClub.

“From an investor’s point of view, I would prefer to use the currency basket established by the Central Bank. I would keep rubles in the basket because I believe the ruble rate is likely to climb to between 31.5 and 32 rubles per U.S. dollar,” he said.

The dollar has strengthened against the euro because of fears concerning a potential Eurozone collapse.

“Investors are taking their money back, selling euros and purchasing U.S. dollars. This leads to the weakening of the euro and the strengthening of the dollar,” said Sobolev. “People will start choosing to buy shares and make deposits in dollars, and will use the dollar as a reserve currency,” he added.

“Concerning the fluctuation in the [ruble to euro and dollar] exchange rates and 10- to 15-percent currency drop, it’s absolutely crucial not to panic and not to run and exchange money,” said Ivan Makarov, press secretary for VTB 24 bank in Russia’s northwest.

“What people now consider to be a dramatic rise in the exchange rate — if we compare it to [the crises in] 1998 and 2008 — is not. Before, they thought that currency rates doubling was a dramatic increase; now a ten-percent jump is considered to be critical,” Makarov said.

Although the European economy is weaker than that of the U.S., analysts don’t anticipate a steep drop in the euro rate against the ruble.

“I think we’ve seen the low of 38 to 39 rubles per euro,” said Sobolev.

“The Central Bank and the Russian Central Bank in particular will keep the euro as a second reserve currency. Thirty-nine to 40 rubles per euro is a normal exchange rate; at this rate it is safe to purchase euros and wait,” he added.

Another issue under consideration amid the global economic recession is oil prices, a critical point for the Russian oil-oriented economy. A proposal to reduce the oil production limit was rejected when OPEC confirmed the limit of 30 million barrels per day at a conference on June 14 in Vienna.

In an interview with The Wall Street Journal, First Deputy Prime Minister Igor Shuvalov said that the current recession in the European economy poses a greater risk to Russia in terms of a drop in commodity export prices than in the fluctuation in euro rates. Shuvalov also said that oil prices of about $90 per barrel are tolerable for the Russian economy, but that officials are aware that a drop in prices, like that which took place in 2008, is possible.

Oil currently costs about $96 per barrel.

“Oil costing less than $100 is a modern reality; we didn’t hike prices in 2008 and 2010, and won’t do it now,” said Sobolev.

“I think by the end of this year and during the next year, we’ll come to terms with a price range between $70 and $90 per barrel. The price will only dip lower if there is a force majeure caused by what might happen on the stock market in the event of a Eurozone collapse.”

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