OREANDA-NEWS. September 20, 2010. Over the past 3 days the official ruble exchange rate to CBR’s bi-currency basket has fallen by 1.8%, from RUB34.57 on 13 September to RUB35.20/basket yesterday. As a result, the Russian currency broke down through the narrow corridor in which it has been trading since mid-April, closing yesterday at RUB35.67/basket – its lowest level since 1 February 2010, reported the press-centre of OTKRITIE Financial Corporation.

View: The move in Russia’s currency was accompanied by a rise in speculation – both on the market and in the Russian media – that the ruble will inevitably face another devaluation before year’s end, driven by the country’s shrinking trade balance and even a current account deficit (the latter could be the result of large repayments on private foreign debt due in December of this year).

We do not share the fears over forthcoming trade and C/A deficits (we forecast a trade surplus in 2010 close to USD150bn and a C/A surplus of USD85bn) and believe that the current weakness in the ruble is the result of well-planned action by monetary authorities aimed at halting the build-up of large speculative positions in the Russian currency.

Recent news flows show a major rise in inflationary pressures in the economy which has led many observers – including us – to suggest that CBR could respond to a rise in CPI growth by allowing the ruble to appreciate. We still share this view, and see recent movements in the exchange rate as CBR’s attempt to ‘punish speculators’. The regulator has pursued similar policies on many occasions in the past and there seem to be solid grounds to do this again. However, from our standpoint the issue of ruble appreciation is still very much on the table and we forecast the currency to trade at around RUB33/basket by the year’s end.