Although oil prices and the ruble are stable against the dollar right now, in the medium term they can drop due to US Federal Reserve's plans to raise interest rate from current 0.5-0.75% to 3% until 2019. Associate professor of Stock Markets and Financial Engineering of RANEPA, Vasiliy Yakimkin, discussed how much will dollar rise and how will it affect world markets in an interview with Vestnik Kavkaza.
- What will be the consequences of Federal Reserve's interest rate increase to 3%?
- The dollar will be supported, so it will begin to grow, and incomes in dollars will also increase. In turn, it will put pressure on the stock market and bonds, prices will decrease there. At the same time, it should be understood that different regions of the world will react to this differently. It will create two problems for emerging markets. First of all, the dollar will become more expensive compared to currencies of the emerging markets and compared to commodity prices - so the oil prices will fall as a result, it will cause a double damage to the currencies, including the ruble. Second of all, investments will go from the emerging regions to the US, and policy of the new administration will contribute to this, since if will be focused on anti-outsourcing, so that US companies went back. Financial flow to the United States will allow American economy to get better at the expense of others, so emerging markets will definitely feel pressure from this side.
- What should Russian financial authorities expect?
- Of course, nothing good will come for Russia if US Federal Reserve will raise interest rate. At the same time, right now our top financial authorities, such as Finance Minister Anton Siluanov and chairman of the Central Bank Elvira Nabiullina, are trying to stop ruble at the current level, so that Russian currency didn't strengthened too much and export-oriented industries would feel comfortable. They expect that dollar will rise, they will view it normally and say that nothing terrible happens. We should not forget that Federal Reserve is going to increase interest rate gradually, after all, even Donald Trump said that he doesn't like strong dollar, since American exporters don't like when it's too strong. By the way, dollar dropped immediately after this "verbal intervention".
- Is it possible that US won't raise interest rate?
- Raising rates is convenient for the Federal Reserve. They can fight inflation this way. But America also has such financial problem as giant debt that exceeds $20 trillion. It must be dealt with, and any increase of the interest rate automatically makes it harder to pay off this debt. Profits will grow, but the price will drop. In this connection, I doubt that the rate will reach 3% by the end of 2019, even though officials from the Federal Reserve make such statements. According to my estimates, it will reach 2.6% at best. If it will go any higher it will create a lot of problems for this debt. So they will try to keep it at the level of 2.6%.
- How will Federal Reserve act this year?
- I expect this year the interest rate will be raised only twice, not three times like the Federal Reserve has promised. It will be enough to support both the dollar and commodity markets. In particular, oil will be able to stay at the level of about $60 per barrel, which will help emerging markets. I don't see any other way.