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Tue, 16 Sep, 2014 09:13:48 PM FTimes- Xinhua Report, Sept 16
The Russian ruble continued to depreciate against the U.S. dollar and the euro, hitting an all-time low on Tuesday.
The ruble was traded at 38.93 per dollar and 50.37 per euro during a midday session at the Moscow Inter-bank Currency Exchange (MICEX).
The sustained depreciation was caused by a range of intertwined factors, including Western sanctions and shrinking foreign investment, said Ivan Kopeikin, a financial analyst working for the Moscow-based BKS-Express investment company.
Political uncertainty in Ukraine as well as inaction of the Russian Central Bank also contributed to the decline, he told Xinhua.
"The trend of the ruble's gradual weakening will likely persist due to the above-mentioned factors, unless anything dramatic happens," Kopeikin said.
A weak ruble will negatively affect the Russian economy, he said.
A weak ruble, Kopeikin said, hurts directly those sectors where producers heavily rely on imported machinery and equipment because it increases production costs and makes final products more expensive.
That would in turn undermine the competitiveness of those products in international markets.
"All these factors have a cumulative effect," Kopeikin said.
"The real income of population fells, which will drive down consumers' expectations, decrease customers' credit demand, leave banks with less money to lend to the businesses in the real sector and exercise upward pressure on unemployment."
The economy will thus enter a vicious circle, Kopeikin said.
The Central Bank will have to intervene soon, either to support the ruble by currency interventions, or to expand the boundaries of ruble's floating corridor, he forecast.
Unless some wonder happens in the next few months, the Russian economy will get worse by the end of 2014 than at the start of the year, Kopeikin said.
The United States and its allies have imposed several rounds of sanctions on Moscow over the latter's alleged destabilizing role in Ukraine, with the latest ones targeting Russia's energy, defense and finance sectors.
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