© Liza Ermolenko
|
In my opinion, it is possible; however, that would require rather significant changes in policy making, and it will take quite a long time for these changes to start having effect. Nevertheless, we have not really seen anything from the government, suggesting that they would prefer to make these changes. Thus, at the moment, there is nothing that would tell us that we can expect that happening in the foreseeable future.
As far as I am concerned, Russia's worst case scenario for the oil price stands at $35 per barrel, but we have recently been below this level. How does the fiscal policy change with the oil prices under $35?
Obviously, given that oil and gas make up about a half of all budget revenues in Russia, low oil prices have a very big impact on Russia's budget. Hence, the government will need to reduce spending in order to make sure that the deficit does not widen significantly. Our opinion is that this year the government will probably need to tighten fiscal policy by about 1% of GDP.
As concerns the recent Ruble depreciation, will the ongoing weakness of the Russian Ruble delay or postpone the return to the target inflation level of 4% next year? Is there any chance of interest rates falling anywhere below 10% in 2016?
The weakness of the Russian Ruble will definitely postpone the return to the target inflation level of 4%, that is obvious. In fact, when the Central Bank had its MPC meeting and decided to leave interest rates on hold, the statement, accompanying the meeting, showed that there is a definite shift within the Central Bank in terms of how they view the outlook for inflation and interest rates. At the current moment, Central Bank's officials themselves are no longer talking about lowering interest rates, which they were going to do at the end of last year. On the December meeting they were mentioning that they could cut rates relatively soon, while now there are certain indications that, in fact, they could possibly tighten the policy. Obviously, that is because of the recent fall if the value of the Ruble coupled with low inflation. However, in our view, inflation will be higher this year because of performance of the Ruble over the past couple of months. Therefore, we do not exclude the possibility of higher interest rates in Russia, though we still think that is extremely unlikely to happen anytime soon.
As concerns the outlook for the interest rates in Russia for 2016, we believe that they will probably end the year at exactly 10%.
Currently, the Ruble is trading at around 77 against the US Dollar amid recent sharp fall in oil prices. What other factors could determine the performance of the currency in the nearest future and what are your forecasts for USD/RUB for the end of 2016?
Certainly, oil prices is the most important factor weighing on Russian economy and on the Ruble, as it really moves a lot in line with oil prices. Of course, there are some other determiners, particularly, political sanctions, especially in light of the recent talk that there is a possibility that sanctions may be even eased, which could definitely help the Ruble to recover. In fact, any kind of signs that tensions between Russia and the West could be eased will help the Ruble go up.
In regards of the forecasts, we see the Russian Ruble trading at around 70 against the US Dollar by the end of this year and at 68 by the end of the next year.