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Rouble rebound

Financial Times

Published: March 23 2009 02:00 | Last updated: March 23 2009 02:00

The line held. After the Bank of Russia called a halt to the rouble’s slow-motion devaluation in January, the expected speculative attack on the floor of 41 to a dollar/euro basket never happened. Instead, the currency has strengthened – the central bank even bought dollars last Thursday to prevent excessive appreciation.

That is reason for relief, but no celebration, in Moscow. Russia, after all, has spent a third of its foreign exchange reserves since August on slowing the rouble’s 30 per cent devaluation to a pace that avoided panicking Russians. The rouble’s stabilisation owes much to oil prices staying above $40 a barrel. Its upward spurt on Thursday resulted from a wobbling dollar and spike in commodity prices after the Federal Reserve’s plans for huge quantitative easing. The economic outlook remains as chilly as a Moscow winter. Some 1.1m Russians have lost jobs since December. Retail sales fell year on year in February – for the first time in nine years.

But watching $200bn of reserves evaporate in weeks seems to have focused minds. The Kremlin has dumped earlier signals it would bail out corporate allcomers and now insists that Russian companies must work with domestic banks to solve foreign debt problems. Fears it would use the crisis to grab control of corporate assets have not materialised. The official emphasis is on renewed fiscal discipline.

Investors are somewhat reassured. Moscow’s RTS index has bucked emerging market indices by staging a mini-rally since January. But, while even pessimistic forecasts for Russia’s contraction this year are little worse than G7 countries, the RTS trades on a current-year price/earnings ratio of 5.9 times, below half that of the S&P 500. The reason might be termed the “trust gap”. Scared off by attacks on TNK-BP, Mechel and Royal Dutch Shell and by Moscow’s continuing foreign policy prickliness, investors are in no hurry to return. Rebuilding trust may take longer than returning Russia’s economy to growth.

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