Ruble to strengthen by autumn

U.S. investment bank Goldman Sachs predicts that by September, the Russian ruble will have strengthened to 28 to the dollar.

After a solid gain over the summer, analysts predicts that the exchange rate will likely remain the same for nearly 12 months, may be increasing to 27.5 rubles to the dollar, from the current Russian Central Bank rate 30.45 rubles to the dollar.

Goldman Sachs also forecast that the euro, which will be steadily at around 37.8 rubles for the next six months, in a year will firm up to 37.1 rubles/euro in a year's time. On Friday, May 28th, The Central Bank set the euro at 37.63.

The Goldman Sachs forecast are based on expectations of rising oil prices, which not only increase Russian budget revenues but will also facilitate the resumption of capital inflows.

Experts also expected the stronger ruble to contribute to faster growth in Russia's economy from mid-2010, predicting that Russian GDP will grow by 5.8% this year and 6.1% in 2011

Central Bank Chief: Ruble, Economy Will Weather Euro Crisis

ST. PETERSBURG — The economy and currency should weather the euro-zone crisis without serious implications, and there is no need to change the structure of reserves, Central Bank Chairman Sergei Ignatyev said Thursday.

"The [euro-zone] problem is more political than economic," he said. "With swift coordinated actions of European nations, the problem is fully solvable."

The Greek debt crisis has sent a shiver through investors across the globe, who rushed to ditch the euro for dollars and gold.

Ignatyev called the recent swings in the euro normal and said no changes to the structure of the Central Bank's gold and foreign exchange reserves — the world's third largest, worth some $450 billion — have been discussed.

"We are conservative, we do not change the structure of currency reserves — at least in recent months," he told reporters. "The euro moves one way, another way — one should get used to it."

Asked whether there were any plans to sell European assets from reserves, Ignatyev replied: "For now, I do not feel panic."

At the end of last year, Spanish assets accounted for 2.9 percent of the Central Bank's holdings, while Italian ones comprised 0.4 percent.

Nominally, Russia keeps the portion of its reserves in 47 percent dollars, 41 percent euros, 10 percent sterling and 2 percent yen. It has been gradually increasing the volume of gold, a trend that Ignatyev said would likely continue.

As a result of the euro-zone crisis, though, financial markets have become jittery and prices for oil and other goods have slumped — affecting the ruble.

The currency is slowly recovering from an 8 1/2-month low versus the dollar of 31.69 earlier this week, trading at 30.78 per dollar Thursday.

Ignatyev said the currency remained under the regulator's control, even if the control has softened somewhat.

"The exchange rate regime reflects much better the current volatile situation on global financial and goods markets," he said, adding later that exchange rate fluctuations of 2 percent to 3 percent per day are normal.

"The mechanism [of interventions] is very successful and corresponds to the situation and swiftly adapts to a new situation," Ignatyev said.

The Central Bank keeps the ruble within a floating corridor against a euro-dollar basket, shifting the band by 5 kopeks for each $700 million of interventions in the boundary. In addition, it buys up to $250 million to 300 million a day in "planned" interventions within the band.

Ignatyev said interventions have totaled about $5 billion so far this month.

He declined to comment on whether the Central Bank would continue its year-old monetary easing cycle — which has slashed the refinancing rate by 400 basis points to a historic low of 8 percent — with another cut this month.

"The Central Bank intends to follow monetary policy so as, on the one hand, to stimulate the growth of bank lending and thus economic growth, and on the other hand not allow inflation to exceed 7 percent this year or next," he told a banking forum.

He said year-on-year inflation was running at 5.7 percent as of Monday.

Economists and officials expect the inflation rate to increase in the second half of 2010, with pressure from stronger domestic demand and a traditional end-of-year increase in federal expenditures.

Ignatyev said inflation would also determine any need to increase minimum reserve requirements toward the end of the year, a move that would curb the volume of liquidity in the banking system.

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."

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."

As Ruble Nears Barrier, Central Bank Vows Defense

The ruble tumbled to the brink of breaching Russia’s target trading band, as the Central Bank pledged to defend its six-day-old target after the biggest monthly depreciation in more than a decade. The ruble slid as much as 1.4 percent to 35.6 per dollar, just 1.1 percent away from breaking through Russia’s 36 per dollar limit, before paring declines. Chairman Sergei Ignatyev said Friday. The Central Bank will intervene in the market, limit the amount of refinancing offered to banks and companies and adjust interest rates to keep the ruble from breaking the new trading band. “The market is testing whether the authorities see this band as something permanent or something that will move,” said Lars Rassmussen, an emerging markets analysts at Danske Bank, which ranks itself among the five biggest traders of the ruble through Finnish subsidiary Sampo Bank. “Our view is that they’ll move it because it’s not worth wasting the reserves for a band that is obviously not wide enough.” The Central Bank expanded its trading range for the ruble 20 times since mid-November before policy makers switched last week to let “market” forces help determine the exchange rate. The Central Bank drained more than a third of its foreign-currency reserves, the world’s third-largest, since August to stem the ruble’s 34 percent slide against the dollar. Investors are betting against the ruble as a 69 percent slump in oil prices in the past six months weakens the economy, triggering Russia’s worst financial crisis since 1998. Some $290 billion left the country since August, according to BNP Paribas. The currency has depreciated 20 percent since the start of this year, the worst month since 1998. The government expects the ruble to decline to 36 per dollar after the Central Bank widened the trading band last week, First Deputy Prime Minister Igor Shuvalov told the State Duma on Friday. The Central Bank reinstated curbs on speculators Friday, with a 5 billion ruble restriction ($141 million) on so-called currency swaps, after imposing no limit Thursday. The agreements allow traders to bet on an exchange rate without having to sell currency upfront, and the Central Bank has been limiting them since Oct. 20 to reduce speculative pressure on the ruble. This means banks “don’t have the capacity to increase their ruble shorting,” said Alexei Moisseyev, head of fixed-income research at Moscow investment bank Renaissance Capital. “It’s about trying to regulate speculators.” Moisseyev estimated the Central Bank will defend the ruble’s trading band for a month “for credibility” before widening the targets. The Central Bank may seek to limit bets against the ruble by reducing the amount of money offered in unsecured loan auctions, which were introduced last year to help bolster liquidity in the banking sector. Investors short a currency when they want to bet that it is going to depreciate. The ruble is likely to fall below the Central Bank’s target level “in a couple of trading days,” said Lars Rasmussen at Danske Bank.

Ukraine Assembly Fails Again To Oust Cbank Head

KIEV, Ukraine -- Ukraine's parliament failed again to oust Central Bank Chairman Volodymyr Stelmakh on Monday, passing a resolution annulling his tenure that was dismissed by the president's office as "unconstitutional".
This was the third attempt by Prime Minister Yulia Tymoshenko's faction in parliament to persuade President Viktor Yushchenko to sack the veteran chairman, blaming him for a fall in the hryvnia currency and the state of banks' refinancing.The two former allies have fought constantly on virtually all issues for months, delaying policy making just as the global financial crisis grips the ex-Soviet state.Under the constitution, only the president can initiate the dismissal of the central bank chief, which must then be approved by parliament. Although lukewarm towards the central bank, Yushchenko has refused to sack Stelmakh."This decision is illegal and unconstitutional," presidential spokeswoman Larysa Mudrak said by telephone.The central bank's top economic adviser, Valery Lytvytsky, said Stelmakh would continue in his job after returning from holiday. He was not able to say when that would be."He knows that he is the legal head of the central bank and he will continue work after his holiday," Lytvytsky said by telephone.A total of 227 members -- one more than the minimum needed -- approved the resolution. Parliament passed a no confidence vote in Stelmakh on Dec. 26 and again asked the president to dismiss him two weeks ago.By voting to rescind the 2004 appointment, Tymoshenko's bloc hoped to find another mechanism of getting rid of Stelmakh.Parliament also passed a resolution naming Yushchenko solely responsible for Ukraine's financial woes. Tymoshenko has called for his resignation in December.Lytvytsky said the central bank was currently under the control of First Deputy Chairman Anatoly Shapovalov."The market is not going to be overjoyed by this latest twist in the story, but we hope that it will remain calm thanks to our intervention aimed at maintaining the positive trend (of the hryvnia's rate)," Lytvytsky said.The hryvnia traded at 8.1 to the dollar, slightly weaker than last week when it stood at a touch stronger than 8/$.Dealers said the central bank had communicated its policy well in January with almost daily interventions that have injected liquidity and helped strengthen the hryvnia from December historic lows of 9.5-10/$.But parliament's very moves made them nervous."If management of the central bank changes, then there will be a question -- how will the bank behave?" said one dealer.

Companies Switch From Rubles to U.E.

In a throwback to the turbulent 1990s, some real estate companies and car dealers are repricing their fees in "conditional units" instead of rubles.While conditional units — known as u.e. in Russian — were originally a euphemism for the U.S. dollar during the period of the ruble's instability in the 1990s, it has since come to represent values ranging from the dollar to the euro to a ratio between the two. The government, fueled by complaints from confused buyers and pride in the then-robust ruble, initiated a crackdown on conditional units from 2004 to 2006. But a loophole provided by two competing pieces of legislation suggests that there is room to maneuver.Companies are maneuvering as they scramble to minimize losses from the depreciating ruble, which has lost nearly 20 percent of its value since November. The Central Bank said Thursday that it had "finished" with the devaluation of the ruble.Real estate developer PIK Group began listing its prices in conditional units at the beginning of January, spokeswoman Natalya Konovalova said. The company calculates the mean of the dollar and the euro based on Central Bank rates, and clients pay the company the equivalent amount in rubles."The use of conventional units was around four years ago, and now because of the economic downturn a lot of builders are using this form of measurement again," she said.Most developers are quoting prices in dollars or conditional units these days, she said.The use of conditional units is appearing in other sectors as well. Advertising agency Begun has started selling online ads for 2 to 50 conditional units apiece. The trend is also popular in the auto sector, where foreign cars produced by BMW, Toyota, Mazda and Mitsubishi are priced in conditional units based on euro or dollar rates, Autonews.ru reported.Natalya Orlova, chief economist at Alfa Bank, said that other sectors were also likely to return to conditional units if the ruble remained volatile."If the ruble exchange rate doesn't stabilize at a level of 30 to 33 rubles a dollar in the coming two or three months, then I think a lot of companies will think about using" pricing such as conditional units, Orlova said.So far, the re-emergence of conditional units appears to have occurred primarily in the real estate sector, one of the hardest hit by the financial crisis. Property firm DSK-1, which like PIK received bailout loans from Vneshekonombank, announced this week that it would begin pricing apartments in conditional units after Feb. 1. DSK-1 refused to comment on the decision Thursday.The real estate sector has a history of pricing in dollars, and it was only briefly during the first half of 2008 that landlords began switching to the ruble, betting that the currency would appreciate, said Alexei Yazykov, a real estate analyst for Renaissance Capital.The practice of pricing in conditional units used to be popular with hotels, airlines, restaurants and supermarkets. In 2006, a U.S. lawyer sued Hyatt, Radisson and Marriott for using unfair conditional unit exchange rates in Moscow. Radisson and Marriott said they had not decided to use conditional unit prices again, but one hotelier said it would be a good idea."Today the hotel is losing quite a bit due to the exchange rate. What the government needs to do is allow [businesses] to go back to either conditional units or euro rates," said Michel Stalport, area vice president for the Rezidor Hotel Group's Russian SAS Radisson hotels.He said he believed that the hotel was required to quote its prices in rubles. Other businesspeople said they could use conditional units. The confusion stems from two separate pieces of legislation: the Law on Protection of Consumer Rights, which states that the price of goods and services must be displayed in rubles, and Article 317 of the Civil Code, which allows parties to agree on prices in conditional units as long as the payment is in rubles. Travel agencies, for one, have never fully switched to rubles."Airline tickets are still linked to foreign currency, even though these are tickets sold in Russia," Orlova said. "This means there is clearly a way to recalculate all prices on a daily basis based on a foreign currency."All International Air Transport Association members fix prices at an international exchange rate set by IATA every Wednesday. This week's rate is 43.5 rubles per euro. The government has long pushed for the demise of the conditional unit. Critics of the conditional unit, such as State Duma Deputy Valery Galchenko, have labeled the use of the measurement unpatriotic, and then-President Vladimir Putin issued a decree in March 2006 forbidding state officials from quoting prices in currencies other than rubles.Oleg Zamulin, assistant professor at the New Economic School, said companies are unlikely to flock to the conditional unit because it would be disadvantageous for them to switch currency rates individually when competitors are still using ruble rates.Entire industries switching to the conditional unit would take years, Zamulin said."It took a long time for companies to switch from using conditional units, and it will take a long time for them to switch back," he said.

Central Bank Sets Bottom For Ruble

The Central Bank sought to put a limit on the ruble's gradual slide on Thursday, setting its floor 10 percent below current levels after the currency stabilized in recent sessions.The Central Bank said it would stop widening the ruble trading corridor from Friday -- a process that cut nearly a fifth off the currency's value since November -- and would switch to a managed float.The statement ended a two-month long period of creeping devaluation as the government strove to bring the currency in line with weak oil prices and an economy that it expects to slip into its first recession in a decade this year."From Jan. 23, 2009, the upper boundary of the technical corridor will be set at 41 rubles" versus a euro/dollar basket, the Central Bank said in a statement."The stated value is defined taking into account the remaining risks of worsening terms of trade for the Russian Federation, but the Bank of Russia sees these risks as moderate and does not plan to change this boundary in the coming months," it said.The move comes after Russian officials noted that the depreciation could be coming to an end and after the ruble began to show its first signs of resilience. On Tuesday, it posted its biggest-ever rally versus the basket, and on Thursday it closed at 37.03 -- some way off the Central Bank's weakest boundary."It is a sensible move. They had been very keen to avoid a sudden devaluation for political reasons, so we have this instead," said Nigel Rendell, emerging foreign exchange strategist at Royal Bank of Canada in London."A lot of people have been short on the ruble for a long time, and they might decide the game is up and close their positions so there might be some short-term support," he said. "But the longer-term trend is clearly down unless we get some kind of inversion in the oil price."The Central Bank argues that the softly-softly approach to devaluation has avoided panic among a population that remembers the ruble losing more than two-thirds of its value during the 1998 financial crisis.Prime Minister Vladimir Putin this week ordered that the 2009 budget be reworked at an average price for key export oil of $41, less than half the originally forecast $95.That would mean an economic contraction of 0.2 percent this year, according to updated Economy Ministry forecasts.However, falling imports -- as the domestic economy slows -- will likely keep the trade balance in surplus, giving the ruble some support.Many Kremlin watchers expect Putin to seek a return to his old job as president in 2012, though he himself has not declared an interest.Analysts say his chances of doing that hinge on the handling of the current financial crisis, with the ruble one key factor. But the announcement of a managed float is unlikely to silence the analysts who say controlling the ruble's depreciation -- which has cost a third of Russia's reserves since August -- is too expensive, and a one-off large move or even a free float are needed.Russia's reserves fell a record $30.3 billion in the week to Jan. 16, data on Thursday showed, slipping below the $400 billion mark for the first time since May 2007.

Ruble Claws Back After 2-Month Decline

The Central Bank widened the ruble's trading band on Wednesday for the third time in as many days, yet for the second straight day the currency gained against both the dollar and the euro as tax payment deadlines helped produce a ruble deficit. While authorities said the ruble was nearing the end of its two-month fall, analysts debated whether the currency's equilibrium would actually hold. The ruble closed at 37.17 against the dollar/euro basket on Wednesday, gaining 0.6 percent from Tuesday's 37.38 close. The currency strengthened from 32.97 to 32.77 against the dollar and from 42.64 to 42.21 against the euro. The deadline for VAT tax payments was Jan. 20, and companies will have to pay profit taxes Jan. 28, said Katya Malofeyeva, chief economist at Renaissance Capital. The domestic demand for rubles is likely tied to the two tax payments and may not continue once the period for the payments is over, she said. "Global markets saw a heavy downward correction yesterday, and that's something that affects oil outlook and the ruble's outlook as well," Malofeyeva said. Kremlin economic adviser Arkady Dvorkovich said Tuesday that the ruble was near to reaching its equilibrium level. The same day, the Finance Ministry agreed to base the federal budget on the price of oil at $41 per barrel, a calculation that assumes the ruble will average at 41.40 to the dollar/euro basket. Finance Minister Alexei Kudrin also projected a positive ruble forecast at a financial forum in Hong Kong this week. The coincidence of the ruble's stability and the Kremlin's announcements imply that the state might have the currency's balancing point in sight, said Mikhail Galkin, head of fixed income research at MDM Bank. "In November, the authorities apparently did their math, correctly assuming a further slide in the oil price, and decided to move to a new level of exchange rate that would be better balancing external trade and the budget," Galkin said. "It looks like they are approaching the level they wanted, and they are orchestrating a stop in devaluation by creating a deficit of rubles and sending signals through verbal interventions -- like what Arkady Dvorkovich said," he said. The Central Bank helped spur the deficit by offering an unusually low sum of 80 billion rubles ($2.4 billion) at its deposit auction this week, he added. Still, Malofeyeva said, the Central Bank may simply be trying to throw off currency speculators who have profited from betting on the ruble's decline. The ruble has lost 29 percent of its value against the dollar since August and has been allowed devalue eight times this year by the Central Bank at a rate of about 2 percent per devaluation. Speculators have also benefited from the money the Central Bank has injected into the national banking system, a figure equal to about 2 trillion rubles (almost $60 billion), said Natalya Orlova, chief economist at Alfa Bank. "If the Central Bank reduces support to the banking sector, we can expect the ruble to appreciate. If the Central Bank continues to provide short-term ruble liquidity, then I think the chance of appreciation is low," Orlova said. Galkin of MDM said there was no chance the Central Bank had intervened to prop up the ruble on Tuesday and that there was a greater chance the bank intervened to buy currency -- not sell it -- on Wednesday. "The ruble is not a one-way story anymore, at least for the moment, and the regime is more looking like a controlled free-float," Galkin said. Orlova dismissed the idea that the Central Bank would actually switch to a managed float, where the bank would intervene with the currency only when absolutely necessary. This sort of "dirty float" could cost the state household stability, Orlova said. "People are becoming less secure about the value of their savings and their revenues. Switching to this dirty float in the current environment would exert even more pressure on consumption and on savings," Orlova said.

Ruble Collapse Brings Wages Back to Earth

The days of spectacular wage growth that made Moscow an international employment destination have come to an end, economists say, with layoffs throughout the economy letting employers bring salaries back in line with productivity growth.The earnings cuts, alongside inflation and the weakening ruble, have dealt Russian wage earners a triple whammy, and the Central Bank's devaluation of the currency Thursday brought it past the 32 mark against the dollar for the first time since the 1998 redenomination .Over the past few years, real wages have increased at roughly twice the rate of worker productivity. Now that the value of the ruble is falling — and the job market is shrinking — employers say they'll be able to start paying employees to match their output.In just the past four months, investment bankers accustomed to annual salary jumps of 30 percent are now being offered new jobs at 40 percent of what they had been making. In advertising, sales and marketing, job candidates are facing salary decreases of more than 10 percent, according to recruitment agency Antal Russia.Yevgeny Nadorshin, chief economist at Trust National Bank, said the devaluation would correct what were previously "overvalued" wages and give employers a leg up in contract negotiations. "Eventually it will attract more companies to Russia and help us weather the crisis better," said Elina Ribakova, chief economist at Citibank.Wages grew 12.4 percent year on year in the third quarter of 2008, according to the most recent figures from the State Statistics Service, while productivity — real output per employed person — during the same period increased 8.24 percent, based on figures from Haver Analytics.The data already reflect a slowdown since the second quarter, when wages rose 12.6 percent year on year and productivity increased 5.93 percent. In the second quarter of 2007, wages increased 16.7 percent year on year while productivity rose 6.43 percent.For workers, though, "devaluation means high inflation" in the short term because of Russia's strong dependence on imported goods, Nadorshin said. Though inflation growth fell to a four month-low in December of 0.7 percent, the rate will rise once discounts from cash-strapped foreign producers disappear, he said. After the 1998 crisis, many Russia-based multinational companies paid their employees in foreign currencies or in rubles at the going Central Bank rate, but with increased stability over the past three to four years, many have switched to a fixed ruble salary.Tremayne Elson, managing director at Antal, said salaries were typically calculated at an exchange rate of about 28 rubles to the dollar and were not renegotiated to reflect inflation. Steve Castelete, president of Avalon Logistics Russia, said that most of his employees' salaries had been set to an exchange rate of about 27.5 rubles per dollar after the company switched to paying in rubles five or six years ago. Employees benefited during the years the ruble appreciated, Castelete added. According to Antal's figures, a "large number" of companies have already cut salaries, particularly in the banking and construction sectors. Castelete said Avalon had not yet been forced to reduce its workforce."We're not seeing a correction of salaries at the moment, but we would expect that they would become more realistic as more workers come into the marketplace," he said, referring to contracts for new hires. The shift will be what Danilo Lange, general manager of communications agency Louder Russia, calls a "market cleansing.""It was very difficult to find people for good value the last four years. The employee market was basically empty and everyone wanted super-high salaries," Lange said, clarifying that he believed his employees "deserved" their respective salaries.Louder re-evaluates its ruble-denominated salaries every six months to account for inflation, he said. While the company has not made wage cuts, they did eliminate 2008 bonuses."There's going to be more balance this year," said Castelete, of Avalon. "And I think that's a good thing."