Don't Look to Putin for Ruble Advice After Forecast Misses Mark

  • Putin to picking from millions of questions in annual call-in
  • Bullish currency bet made at last year's event fell short

Investors watching Vladimir Putin’s annual call-in with the Russian public Thursday for clues on the performance of the ruble should be warned: the nation’s president has a poor track record as a currency forecaster.

During the four-hour nationally televised event last year, Putin assured Russians that the ruble would rebound from a 28 percent slump over the previous year because the country’s economic problems had “passed the peak” while oil stabilized. Russia’s main export earner instead continued its freefall and sent the currency plunging 25 percent since Putin’s prediction on April 16, 2015.

As the president responds today to some of the 2.5 million questions Russians have sent in on everything from the economy to domestic pets, another bullish currency call could backfire. While the ruble has strengthened the most among global peers in the past three months, the median estimate of 45 analysts surveyed by Bloomberg suggests it will retreat 5.9 percent by the end of this quarter to 70.58 against the dollar from 66.21 at 1:33 p.m. in Moscow amid bets oil prices won’t go much higher.

“Putin has been too optimistic about oil,” said Vladimir Miklashevsky, a strategist at Danske Bank Plc in Helsinki. “His task is to keep the audience calm despite all headwinds. People want to hear positive things about the future and they get it from Putin. If he completely misses forecasts, his economic advisers are blamed.”

Caught Out

In October 2014, as oil prices slid below $85 a barrel for the first time in four years, Putin assured reporters at a press conference in Milan that the commodity would not be allowed to fall further and that the ruble rate would stabilize as Brent prices rose. By the end of the year, oil prices had slumped to $57 a barrel and the exchange rate had tumbled to a record.

Putin wasn’t the only one to get caught out by the ruble slide in the second half of last year. Although most economists in a Bloomberg survey conducted last April forecast a decline, 36 of 41 underestimated the scale of the depreciation.

“The renewed downside pressure on oil prices in the second half of last year caught many people by surprise,” said Piotr Matys, a strategist at Rabobank in London, who forecasts the currency will depreciate to 68 against the dollar by the end of June. “It would be unfair to criticize President Putin for making a bullish comment.”

Czarist Tradition

In the first hour the show, Putin’s Direct Line, the president said the economy is on a positive track as he answered questions about unemployment, inflation and food prices. The tradition dates back to ancient times when ordinary people were periodically allowed to make entreaties to the czar directly. Today, it might offer solace to Russians suffering the effects of a second year of recession and austerity looking for an end to economic travails.

“This Q&A is aimed at the general public and it’s generally a way to calm everyone down, especially last year when everyone was panicking about what was going on,” said Liza Ermolenko, a London-based analyst at Capital Economics Ltd. “I wouldn’t attach much weight to it.”

Russians felt better about economic prospects even before the audience with the president. A majority think the ruble will strengthen about 36 percent to 49 versus the dollar in the next year, according to a recent poll by the state-run polling company VTsIOM.

This year like last, Putin is fortunate that the timing of his show coincides with a rally in the currency. The ruble’s 14 percent surge has led gains among major world currencies in the past three months. In the similar period preceding last year’s call-in, it also rallied the most among world peers after a 31 percent advance.

“It’s unlikely that the ruble will continue rallying at the same pace,” Ermolenko from Capital Economics said. “The main factor for the ruble is what happens to oil prices and our forecast is for oil prices to be close to where they are now by the end of the year.”

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