Moscow: Russia’s rouble is on a roller-coaster. After being the world’s second worst-performing currency against the dollar last year, it is among the best in 2015.
That will help keep a leash on inflation, to the relief of millions of Russians. But it is worrying one part of the economy — the local industry that had seen demand grow for its Russian-made goods when the falling rubble made imports hugely expensive.
Russian sectors, from building materials to craft beer, took advantage of the rouble’s drop to undercut better-known imported rivals and gain a bigger domestic market share.
Nikita Filippov, co-owner of a St. Petersburg-based craft brewery, says it was a godsend.
“European beers finally hit the price roof, and bar owners realised that they can’t raise their menu prices any more as the beer would become unaffordable,” he says. “That was a crucial moment when the bar owners had to reconsider their profit margins for the first time in many years, and that was the time when they turned their faces to local craft breweries.”
The government has championed such trends, hoping to get something out of the rouble’s dramatic drop last year. One focus is the construction materials sector, as the country prepares to build World Cup venues. Oil companies were also helped, as they sell their product for dollars but have many expenses in roubles, helping to temper the financial pain from lower crude prices.
Now the currency is on the rise again and the government — which only months ago was desperately trying to support the currency — is intervening in markets to keep it from strengthening much further.
After plummeting to nearly 80 roubles against the dollar during panic selling in December, the rouble has recovered to trade at 52.6 per dollar on Friday. That’s still means over a third below its level in January 2014, meaning local industry still enjoys some of their competitive advantage over imports.
The rouble’s recent rise has been helped mainly by a recovery in the price of oil, Russia’s biggest moneymaking export, which has rebounded from lows of below $50 a barrel to around $60 a barrel. That’s still only half the figure of a year ago.
A sharp increase in interest rates and deep budget cuts have also helped stabilise the currency. On the down side, the economy is still sliding into recession and the US and European Union have shown no sign of letting up on the economic sanctions on Russia.
“If the oil price goes down or if, God forbid, there is further escalation in Ukraine or there is surprising news coming from the Russian economy, which is suffering, then the rouble can take a hit,” says Sergei Guriev, a prominent economist and university rector who left Russia in 2013 after coming under pressure from the authorities.
Guriev says the Russian Central Bank has currency reserves worth $362 billion as of May 15 that it can use to influence the rouble’s value. Whereas in December it was running down those reserves in an attempt to support the rouble, the central bank is now intervening in markets to stop the currency from strengthening too much, Guriev says. The bank does that by selling roubles and buying foreign currencies, effectively building its reserves up again.
Guriev says the central bank is under pressure from industry to limit the strength of the rouble.
“Imports were going down because of the weaker rouble. So strengthening the rouble too much would hurt this process,” he said.
At the same time, he argues, keeping the rouble at a stable rate is reassuring for the public after months of turbulence, and is therefore “a politically important issue.”
For the wider population, the rouble’s drop pushed up inflation, which stood at 16.4 per cent at last count, so some recovery in the currency is welcome. Above all, the country wants to avoid such big swings, as it makes it difficult for consumers and businesses to plan ahead. Some economists predict the rouble will remain between 50 and 55 to the dollar this year.
