By Andrei Skvarsky.
A senior economist in the Deutsche Boerse group argues that the Russian central bank’s decision to abandon the ruble’s trading corridor as from next year, letting the currency float freely, is a positive move long-term but unlikely to help the ailing Russian economy a great deal short-term.
“Longer-term, it’s a positive move and allows the central bank to move to an inflation targeting regime and make monetary policy more effective,” Philip Uglow, chief economist at MNI Indicators, a division of German bourse-owned intelligence firm MNI, told EmergingMarkets.me in emailed comments.
“So far the news has been taken positively by markets with the rouble trading significantly higher,” he said. “This probably stems from two factors. First, the central bank has pledged to step in and intervene should there be a threat to financial stability. Second, the oil price has managed to recover which has lent some support.”
“Over the short term, though, it will be a very volatile period for the currency and given the renewed troubles with Ukraine and dismal economic data from the country further pressure on the currency seems likely and at some stage the central bank will intervene,” Uglow said.
He cited recent surveys by MNI Indicators that suggest that consumer sentiment in Russia fell to a “record low” in October and that the same month business sentiment among Russian companies hit its lowest point for this year, with businesses complaining that the ruble’s decline was hurting more than ever.
“We’ll be lucky to see positive growth this year and the economy continuing to stagnate in 2015,” Uglow summed up.
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