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A Former Russian finance minister says that, although the wild fluctuations in the ruble may have ended, its value could continue to fall for as much as two years more.
Alexei Kudrin said in Moscow on Nov. 22 the ruble has finally begun to adjust to the sanctions imposed by the United States and the European Union, the sharp drop in the price of oil and the country’s sluggish economy.
“These factors are by and large are already priced in,” Kudrin said. “The ruble has found its equilibrium.”
So far this year the ruble has lost about 30 percent of its value compared with the US dollar. Russia’s central bank, the Bank of Russia, even spent $30 billion in October in an effort the halt the drop, but that tactic failed. Finally, on Nov. 10, the bank allowed the ruble to float freely and let the world market determine its value.
Nevertheless, Kudrin said, the ruble will continue to fluctuate and lose strength slowly while it floats to a stable value. He said that process is likely to take about two years. And in a commentary published in Russia on Nov. 21, he said Moscow won’t be able to attract foreign investors back to Russia until after the country has enjoyed several years of economic growth and the ruble has become reliable again.
In the meantime, Russian President Vladimir Putin apparently has given free rein to the Bank of Russia to exercise austerity. Besides approving its decision to let the ruble float, he has also allowed it to raise interest rates. That action alone could deepen Russia’s recession in 2015. But so far it’s prevented a financial panic, inflation or a collapse of the ruble altogether.
“There is ongoing criticism of the central bank and of the whole government being Putin’s lap dog,” one anonymous Russian government source told Reuters. “But all things considered, the central bank is now much more autonomous than it is broadly perceived.”
Despite this apparent independence, it also seems to have Putin’s trust, at least for now. “What the central bank is doing is in line with what the leadership wants, in a strategic way," said Christopher Granville, managing director of Trusted Sources, an investment research firm in London. “Stability is the absolute top priority, rather than avoiding negative growth at all costs.”
But Putin can always change his mind. As the Russian leader told Finance Minisater Anton Siluanov on Nov. 18, there always should be “teamwork between the central bank and the government.”
As for Kudrin, his service as finance minister ended in 2011 when he was fired by Dmitry Medvedev, then Russia’s president. During his tenure he was seen as a champion of fiscal responsibility in Russia. He is widely regarded as an ally of Putin, and now that Putin is president again, Kudrin is expected to return to government, perhaps even as prime minister, a post now held by ex-President Medvedev.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com