Consequences of a weakened ruble

(Moscow News – themoscownews.com – Natalia Antonova, Nathan Gray – February 5, 2014) Following the weakening of the ruble, Moscow residents both foreign and local are bracing themselves in expectation of higher prices and general market instability. Yet according to the experts, it is too soon to tell whether or not the currency’s present state will have a lasting impact on Muscovites’ daily lives.

The ruble’s continued slide has occupied the minds of economists and analysts dealing with Russia over the second half of January.

The currency has recovered slightly this week, with the Central Bank establishing on Wednesday an official rate of 34.96 against the dollar and 47.22 against the euro, Prime News Agency reported.

For consumers on the street, one clear message is that visitors pricing their trips in dollars or euros are going to benefit. For expats who live here, prospects vary, according to whether the topic is rent or food – but those who are paid in euros or dollars in particular stand to reap benefits.

Rent worries ahead?

Despite the weakening, the housing rental market remains mostly based on the ruble, the currency in which landlords’ costs are generally set, Andrew Grenfell, co-founder of the Expat Flat apartment search company, told The Moscow News.

“The housing rental market remains predominantly tied to the ruble, as landlords’ costs also tend to be ruble-based,” he said in an e-mail. “The falling ruble therefore currently spells an effective reduction in rent of almost 10 percent for anyone with [an] income based on the dollar or euro.”

Some landlords do ask to be paid in dollars, mainly because they live abroad, but the company has not noted a trend in that direction, Grenfell added.

“Barring a widespread loss of trust in the ruble, we do not expect this to change,” he said.

Yet for some expats in Moscow, changes in rental arrangements are already on the horizon.

“My landlord mentioned she might want to get paid in euros,” Mark, an English-language teacher from Britain, told The Moscow News. “She sort of floated the suggestion, but I suspect it will come to pass.”

For Mark, who asked that his last name not be used for privacy reasons, the weakening of the ruble may have other long-term consequences.

“My concern is with the not-inconsiderable savings I’ve built up,” he said. “[The ruble] was 50 to a quid, now damn near 60, which makes me feel like I’ve worked one hour for free for every five hours.”

A rush on the market

The decline, while not unforeseen, gathered speed through the combination of a gradual wind-down of quantitative easing in the United States – affecting emerging markets broadly, several worse than Russia – and a Central Bank move toward floating the ruble freely on currency markets, reducing supportive intervention in the process.

According to Yevgeny Golosnoi, consumer market analyst for Metropol, much in terms of everyday costs depends on whether or not the situation will stabilize soon.

“What is happening now is that there is a rush on the currency market,” he said. “We will know more once the ruble is stabilized.”

Prices of foreign-made consumer goods will rise in connection with the ruble’s decline, but Golosnoi pointed out that it would gradually affect domestic goods, too.

“Importers don’t want to lose money, so imported goods will go up, and this can affect prices on domestic goods as well, [but] that can take a few months,” he said. “Think about it this way – if Western cheese goes up in price, Russian cheese will also grow more expensive over time. People take note of their rivals’ prices and act accordingly.”

Seasonal factors and prices

However, Moscow-based food writer Jennifer Eremeeva said that prices for Russian goods are likely to rise almost immediately, but as much in connection with seasonal factors as the shift in the ruble’s value.

“My understanding is that the inflation is going to hit the prices on domestic products immediately, that everything will have an immediate adjustment,” she told The Moscow News. “In a few months, we’ll see [imported goods] go up. This time of the year, most of the produce and meat is coming in from abroad, in terms of what expats are consuming.”

Around March, when produce from Russia and the other former Soviet countries begins to arrive, prices should “correct lower,” she added.

The ruble and Russian exports

Analysts have suggested that one potential effect of a decline in the ruble could be an improvement in Russian exports, especially in small industries, through cheaper products.

In the food industry, earlier, larger crises have had similar impact, with domestic supermarket firms able to fill the gap after the 1998 crisis forced foreign companies to abandon their plans to establish themselves in Russia, Eremeeva said.

“I wonder if that’s not going to happen on a smaller scale here,” she said. “There has been a focus on local, organic, farm-produced…. I wonder if that isn’t just going to take over, and people say, ‘Okay, enough of this French yogurt, we have perfectly good yogurt of our own.'”

Eremeeva also thinks that Russia is a place where it is easier to find ways to prepare food for yourself cheaply, should the going get tough.

“You have all this range of possibility, so you don’t have to be making Italian pasta with imported squid from Madrid, and I think we’ll see people move away from that,” Eremeeva said. “It’s never been a better time to be a borshch lover.”

For Marco North, creative director at Bittersweet Group and author of the Impressions of an Expat blog, good food and imported ingredients are nothing to skimp on, regardless of what is happening on the currency market.

“Healthy food is not a luxury, it is a necessity,” he said. “If dark greens like spinach are 50 rubles a bunch now, so be it.”

But overall, North has not yet noticed any significant price increases on food.

“Everything here is already freakishly overpriced, but no, prices have not gone up in the last six months,” he said. “And I shop every single day, in up to four different places.”

When it comes to getting a better deal on good ingredients in Moscow, North recommends places such as Dorogomilovsky Market, where haggling can be an option.