MOSCOW (Reuters) - The rouble’s exchange rate is close to fundamentally justified levels, Russian Economy Minister Maxim Oreshkin said on Friday, having warned earlier this year that it was too strong.
Speaking at the annual Reuters Russia Investment Summit, Oreshkin also said he did not expect the currency to fluctuate significantly given the price of oil, Russia’s main export.
While households and import-focused companies benefit from a stronger rouble, as it lowers inflation and makes foreign goods cheaper, the oil-dependent economy and budget benefit from a weaker currency since they receive more funds from selling commodities abroad for dollars.
“Now we are close to fundamental levels,” Oreshkin said, when asked about the rouble rate.
He said gains in the rouble earlier this year were caused by inflows into Russian domestic bonds. Many local borrowers also converted funds raised in Eurobonds into roubles earlier this year.
“Plus strong expectations of 55 were building in the market,” Oreshkin said, referring to the rouble rate against the dollar.
The rouble hit its weakest ever point of 86 against the dollar RUBUTSTN=MCX in early 2016 before recovering along with oil prices to reach 55.72 in April.
The rouble recovery prompted Finance Minister Anton Siluanov and other government officials to say the free-floating currency was too strong and led to one of several verbal interventions by Oreshkin.
The currency traded around 57.60 versus the dollar on Friday, up 6.5 percent so far this year but still far below levels of around 30 where it traded for several years before Moscow’s annexation of Crimea in March 2014.
The economy ministry forecasts the rouble at 63 by the end of the year, but Oreshkin said: “With the current oil price I don’t see strong moves in the exchange rate.”
Oil prices have gained more than 15 percent in the past three months to trade above $56 a barrel LCOc1, and were steady on Friday, as investors waited to see if producers would back an extension to output cuts beyond March.
Annual consumer inflation, which reached a high of 17 percent in early 2015 when the rouble was collapsing, rapidly slowed this year, reaching 3.3 percent in August.
Now, with it below the targeted level of 4 percent, the central bank faced the increasingly complicated task of keeping the pace of consumer price growth steady, Oreshkin said.
“To keep inflation at 4 percent, one should need to understand all the processes and give precise forecasts for 6-12 months ahead,” Oreshkin said.
Having reined in inflation, the central bank is still keeping monetary policy tight. It trimmed the key interest rate to 8.5 percent this month and indicated it would bring it down to 6.5-7 percent in 2019.
It has also said it still needed to convince households that inflation has slowed from double-digit levels.
To quickly anchor such expectations, inflation should hover within a narrow corridor of one percent, Oreshkin said.
Analysts and economists polled by Reuters expected full-year inflation at 4.1 percent, and the key interest rate at 8.25 percent by year-end.
Additional reporting by Denis Pinchuk, Polina Nikolskaya and Zlata Garasyuta; editing by John Stonestreet