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US sanctions magic: A grim New Year is expected for the Russian ruble

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December 26, 2017 – FRN – 

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KtovKurse – translated by Inessa Sinchougova 

New US sanctions may prohibit foreign investors from buying federal loan bonds, precipitating the ruble exchange  collapse by 15-20%.

In a Forbes column, Dmitry Ladikov-Roev shared his opinion that a high proportion of non-residents in the federal loans market (OFZ) could cause a severe fall of the ruble when new US sanctions are implemented. 

This year, as one of the positive economic results, experts believe to be a low inflation rate in Russia. It was less than expected, by 2.5%. Also – GDP growth, which was almost 2% higher than expected. The economic growth was negatively affected by the decline in industrial production, which, despite active growth in the first 10 months of the year, showed a sharp decline: in November, the rate showed a -3.6% downwards mark. So, by the end of the year, the growth of the industry will show only 1% instead of the expected 2.1%.

In 2018, the Finance Ministry plans to purchase more currency, which will lead to the strengthening of the dollar to the level of 60-63 rubles per dollar. The central bank will continue to gradually reduce the key rate to a level of 6.5-7%. It is planned to stabilize oil prices as a result of the extension of the deal with OPEC –  $ 55-65 per barrel. All these factors, in general, should positively influence the development of the economy in the next year.

However, external intervention through sanctions can significantly affect the situation in the Russian economy.

More than 30% of OFZs were purchased by foreign investors. Experts believe that due to the ban on acquisitions of debt securities, most likely for new issues, the ruble’s exchange rate may sharply weaken. This may entail an increase in interest rates on the debt market by 0.5-1% per annum.

Experts forecast the weakening of the ruble may amount to 15-20%, in 2018.

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