How low can the rouble go?

The rouble this week was hovering close to the Central Bank's latest line in the sand, 41 to the dollar, after the government has spent some $200 billion - one third of its international reserves - in managing the currency's decline against the dollar/euro basket in the last six months.
Most experts expressed some hope that the new trading floor would hold, but said a lot would depend on how long oil prices stay low
Yevgeny Gavrilenkov (chief economist, Troika Dialog): "In principle it is easy for them to keep the rouble at 41 against the basket. They have to stop lending roubles because the macroeconomic fundamentals mean they have to adjust the balance of payments to the oil price.
There is liquidity in the banking system but every day they inject more. A week ago it was still 800 billion roubles a day, although it is decreasing now. Liquidity was injected but banks lacked it because it went straight to the foreign exchange market. They need to raise interest rates to something that prohibits speculation, 20 per cent, 30 per cent, 1,000 per cent if necessary for a short period of time.
There is a need to adjust the currency to economic reality because the rouble was overheated in previous years on the back of high and permanently rising oil prices. It is back to what it was four years ago in real terms.
Ideally we need a floating ex­change rate, but as long as they keep lending money at a negative real interest rate it will be very difficult to find the bottom."
Martin Gilman (professor, Higher School of Economics, and a former IMF representative in Russia):
"The government can protect the rouble in the short run. They have almost $400 billion in reserves to back up their exchange rate policy. However, they wouldn't want to throw all their reserves at the exchange rate.
It is critically important that the population does not panic because the greatest danger to the rouble is if the population has a run on it. In that respect, the Central Bank's policy of small step devaluations has been sensible as people have moved deposits into dollars.
The Central Bank can hold the rouble around 41 against the basket providing oil stays above $35. Below that they will have to expand the band. In the longer term if oil prices do deteriorate they should not even try to protect the currency.
Monetary policy should be tightened, which they have been doing over the last few weeks. If you can create a demand for rouble liquidity with higher interest rates this will discourage conversions into foreign exchange."
Alexei Moisseyev (deputy head of research, Renaissance Capital):
"As­suming oil prices hold, it is likely that the rouble will be controlled by the Central Bank at the current level - 41 to the basket, though clearly the dollar-rouble rate could fall further as a result of a decline in the euro.
I think we could expect the world economy to start showing some tentative signs of recovery by the second half of 2009, which would result in a rebound in commodity prices towards more sustainable levels, which, in turn, will lead to the rouble strengthening.
As far as trade, and, more broadly, the current account are concerned, the existing rouble value is fair. However, it is clearly not sufficient to cover the upcoming debt payments of Russian banks and corporations, so there is no realistic equilibrium value at the moment. Debt payments are high, so the Central Bank will have to continue to support the current exchange rate via its reserves.
In the medium term, the dollar will weaken as a result of expansionary monetary policy, which will also help the rouble strengthen against the dollar."
Ronald Smith (head of research, Alfa Bank):
"The market will test the current trading band for the rouble but there are no calls for further devaluations. At the moment it is at about the right level and it is hard to see it going further.
The stability of the managed float has helped investors and traders but too much of the reserves have been expended. The rouble should have been devalued to this level much earlier on and then held at a weaker value. However, if they let it float freely it will create unwanted instability.
In the medium term, the rouble depends on the oil price. If the U.S. Federal Reserve prints too much money, oil prices will go up again but too little and prices will go down. Nobody expects them to get it right.
At the moment the Central Bank is providing rouble liquidity but this is immediately being converted into dollars. However, the banking system needs it so they have a double problem."