‘Ruble dropped because of the speculative forces in the market’

Once the ruble free float was announced it becomes difficult for speculators to predict Central Bank moves. Speculators were part of the reason behind the drop of the Russian currency, Pyotr Panov, Managing Director from Lakeshore International, told RT.

Russian Central Bank has announced the ruble can float. The value of the ruble has been dropping since sanctions on Russia were installed and oil prices have fallen. After abolishing the exchange rate corridor the position of the Russian currency has slightly improved.

READ MORE:Russia ends dollar/euro currency peg, moves to free float

RT:Explain to us why there is this positive reaction as regards the ruble’s position?

Pyotr Panov: The reaction is well-expected. You may find several reasons for the ruble exchange rates dropping sharply over the course of the last several months. Those reasons will be fundamental, and you can mention the slowdown in the Russian economy, the outflow of investment, sanctions and - most importantly – the drop in the oil price. However, if you take a look at this more carefully, the oil prices stabilized around 82-83 [dollars per barrel] for some time now, oil prices dropped about 30 percent. The exchange rate was continuously dropping and over the course of the last two weeks the ruble weakened by 15 percent, in the total by about 50 percent. What’s the reason? The answer is in a way simple – it’s the speculative forces in the market. The Russian Central bank was acting to every drop of the ruble by infusing dollars in hard currency into the market. Speculators were expecting when the ruble was getting close to the bi-currency corridor, they were expecting the infusion of dollars in the system and playing this.

What President Putin said that the exchange rate will be now be free and Russian Central Bank will act only when it wants to; its infusion of currency in the market won’t be predictable, therefore, for the speculators it would be much more difficult to predict when the Central Bank will move. Hopefully, that would take off the speculative forces in the market. So the correction of about three percent in the ruble is pretty much the result of those announcements.

RT:The Central Bank has been propping up the ruble for months spending billions of dollars. Why has it decided to change the strategy now?

PP: The Central Bank announced the change in strategy several years ago and it used to be the main objective of the Central Bank to keep the ruble in some kind of corridor. Now the main objective of the Central Bank is the control of inflation. One may argue that it is not the best moment; I think the moment is well-thought through. The announcement was made in China in addition to the announcement of trade between Russia and China being done in rubles and the Chinese national currency. The moment is great because now the main objective is to take out speculative forces. It was planned a while ago and now the timing is pretty good to cope with the further drop in the exchange rate. And the current exchange rate is supposed to support Russian domestic demand and Russian domestic production.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.