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VTB Russia expects the rouble to fall to 90 per dollar by 2025

A top VTB executive said that the Russian rouble would weaken to 90 cents against the U.S. Dollar by 2025, due to a fall in the central bank's forex sales. This will follow a rally that has been successful in fighting inflation.

According to LSEG, based upon over-the counter quotes, the Russian currency had gained more than 40% against the U.S. Dollar in 2018. It was trading 0.5% higher at 78.70 per U.S. Dollar by 1230 GMT Friday.

The central bank was able to reduce its interest rate to the lowest level in 20 years in part due to the lower inflation in June. This month, more cuts are expected.

Dmitry Pyanov is the first deputy CEO at VTB. He claims that Russia's central banks has been supporting the rouble by selling foreign currencies. Pyanov is also VTB’s CFO and the first senior executive who has suggested that the rouble’s rally was deliberate policy to combat inflation.

He said that the rouble would gradually weaken due to the expected decline in central bank forex sales this year, as a strong currency hurts exporters and will put pressure on regulators.

Pyanov said in an interview that he believes the rouble is at its current peak and won't grow any further. Many Russian economists, government officials, and business executives believe that the rouble has become overvalued.

The central bank has said that it does not target exchange rates, allowing the rouble's value to fluctuate freely. It attributes the recent rouble appreciation to geopolitical issues and the weak demand for imported goods, with firms and consumers refusing to take out loans to purchase these items.

The central bank is increasing its net forex sales in July by 31%, to 9.76 billion rubles ($124 million). This will help maintain the rouble's current value despite calls for it to weaken.

Pyanov criticized this policy. He said that the floating exchange rate system of the central bank only worked in one direction. It prevented the rouble's excessive weakness, but not its strengthening.

As the exchange rate starts to fall, the central banks begins selling foreign currency. He said that's why he calls it "a floating rouble but only in one way". Markets should also take into consideration this policy. (Writing and editing by Andrew Osborn, Rachna uppal, Gleb Bryanski)

(source: Reuters)