REPORT
By Emre G├╝rkan Abay
Russia letter, Feb. 6

 -Russia to start FX purchases

 

While the world has been busy with stories from the new Trump period in the U.S., another important development took place in Russia last week.

The country’s Ministry of Finance announced that it would once again start buying foreign currencies, a move that the country made nearly three years ago.

The ministry explained the logic of this move by saying that the strengthening of the Russian ruble could hurt exporting companies in the country who sell their products in U.S. dollars. It was also underlined that this move would not have serious effects in the market.

However, most analysts predict that this approach could pressure the ruble and the stock markets. It transpired after the announcement that the value of the shares of exporting companies began to rise steadily and the ruble started to increase from 58 up to levels of 60 against the dollar.

Experts estimate that with the current oil price, the ruble could lose 5 to 10 percent of its value against the dollar. The Russian Central Bank announced that it would continue to support the free float of the ruble and that it would not intervene in its movements.

In the previous foreign currency purchases in Russia in December 2014, when the country purchased $3 billion, the ruble’s value increased from 50 levels to 80 levels against the dollar.

Meanwhile, Russian Prime Minister Dimitriy Medveved met with government officials last week and announced a three-year privatization plan. According to the government’s plan, through privatizing companies in banking, commodities, industry and the infrastructure sector, the planned gain in income of 17 billion rubles is targeted between 2017 and 2019.

The plan has the option to expand towards 300 billion rubles in privatization. Leaks to the Russian press indicate that among the planned companies for privatization are VTB Bank, Russian Railways and the Russian Postal Company.

 

-Russians remain pessimistic

Despite the positive rhetoric of Russian officials on the economy, Russians are still pessimistic.
According to a poll conducted by a Russian independent, polling a sociological research organization, Levada Center, 78 percent of Russians believe that the economic crisis is continuing.

While 62 percent of Russians believe the crisis will continue for at least another two years, only 4 percent believe that it will end in six months.

This pessimism among the people is quite understandable as the consumer market in the country has shrank to the lowest levels in the last 12 years and real income is still declining, according to official statistics.

 

06 Feb,2017

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