Why the rouble has been devalued gradually
The gradual devaluation of the rouble has mitigated the impact of the crisis on people, said Prime Minister Vladimir Putin, thus supporting the Central Bank and the Finance Ministry's actions
At a meeting with leaders of the United Russia party on February 27, Mr Putin explained why the Government had rejected the idea to sink the rouble and introduce currency control. Yuri Vasilyev, Chairman of the Sate Duma Budget Committee, asked the Prime Minister whether it wouldn't have been more sensible to let the rouble fall sharply and use the resources spent on supporting it for other purposes.
"This approach to the issue is justifiable considering the economic expediency of such a step," Mr Putin replied. However, he pointed out that a steep devaluation of the rouble in 1998 had spurred inflation in Russia from 11% in 1997 to 84% in 1998, thus depreciating people's savings. As a result, people's real incomes dropped by half. Exporters benefitted from the devalued rouble, but people's trust in the economy weakened. The devaluation produced "a very negative social and psychological effect" and the GDP fell by 5.2%, Mr Putin summed up. According to him, the gradual devaluation has allowed people to "decide on their line of conduct" and helped to retain their trust in the banking system. Should the Government decide to restrict the movement of capital and currencies, this would mean that it has given up its "plans to turn the rouble into a regional reserve currency."
The Central Bank and the Finance Ministry have been harshly criticised for their actions in the past few weeks. Vladimir Yakunin, president of the Russian Railways rail monopoly, called for the introduction of currency control, while Sergei Chemezov, Director General of the Russian Technologies State Corporation, said that the Central Bank's refinance rate (13%) was "simply absurd."
Since August 2008, the rouble has plummeted 52.5% against the US dollar to 35.7223 roubles per dollar.
The Central Bank spent 177.4 billion dollars and 23 billion euro from its international reserves on currency interventions (data for the September-January period).
Yevgeny Gavrilenkov of the Troika Dialog investment company is convinced that the decision on the gradual rouble devaluation was correct: Although it has led to a slowdown in growth, it has also helped to support the producer and avoid a surge in inflation. However, the Central Bank made a mistake when it declared its intention to "protect" the value of the currency basket at 41 roubles. Having sharply reduced money supply, the Central Bank is controlling the situation on the currency market, but it will have to sink the rouble by another 10% by the end of the year, Mr Gavrilenkov said.
Vasily Kashin