Sep 4, 2022
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Again the dollar at 100: The ruble exchange rate may lose stability by 2023

Again the dollar at 100: The ruble exchange rate may lose stability by 2023

Photo: John Pulsifer/ Look Press

The exchange rate of the ruble remained extremely stable throughout August, being at the level of 60 against the dollar and the euro (by the way, the exchange rate of the European currency against the ruble fell lower than against the US for the first time in a long time). However, according to some experts, the “Russian” will not be able to maintain such calmness for a long time – next year, new factors will put pressure on the ruble exchange rate, including the restoration of imports.

In addition, among the risks for the Russian currency, the head of the banking and money market department of VELES Capital Investment Company Yuri Kravchenko called further easing of the interest rate policy of the Bank of Russia, as well as the mood of global investors, who have actually lost interest in the Russian foreign exchange market due to continued capital restrictions for non-residents.

But still, the decline in exports, the restoration of imports, including parallel ones, and, as a result, the reduction in the positive balance on the trade account remains the main threat to the ruble exchange rate, which can lead to a noticeable decline. However, the financial authorities may not perceive this as a threat – back in June, Deputy Prime Minister Andrey Belousov said that they are working to return the dollar to the “optimal” for the Russian economy 70-80 rubles. So far, this has not been done even in August, which used to be traditionally considered a difficult month for the Russian currency.

But already in September, the above-mentioned factors, as well as potentially another one, the return of the budget rule, may begin to play against the ruble. As he told the Free Press Andrey Kochetkov, Leading Analyst, Global Research Department, Otkritie Investmentsthis measure is being actively discussed by the Ministry of Finance, although the Ministry of Economic Development and the Central Bank do not support it. According to the expert, if other negative factors such as falling oil prices and a sharp reduction in the trade balance converge when the budget rule for the ruble returns, by the beginning of 2023 it could soar to 90-100 per dollar. The same breakthrough is possible with the return of access to Russian assets for non-residents from unfriendly countries.

“Until access of non-residents from all countries to the Russian market and assets is restored, the ruble exchange rate will be formed at the expense of the trade balance,” Andrey Kochetkov explains. “It all depends on how strong he is. If oil remains in the region of one hundred dollars and above, there will be no talk of any weakening of the ruble exchange rate.

However, there is a nuance here – from September, the Ministry of Finance, presumably, wants to start test currency purchases under the new budget rule. If the department buys very large volumes of currency, even from friendly countries, this will put pressure on the ruble. It is likely that the rate will weaken to 70 per dollar, or even stronger.

If, moreover, we have a negative situation on the oil market and the price per barrel of Brent falls to $60-70, then, taking into account Russian discounts, its export will cease to be profitable for us. The trade balance will collapse sharply or even go into negative territory, as we expect parallel imports to rise. Already now we are seeing its activation, for example, the trade balance with Turkey is growing very strongly due to the fact that they are driving goods to Russia through their country. Trade in yuan with China and with some CIS republics is increasing.

In the case of the introduction of a new budget rule and a decrease in Russian exports, the exchange rate of the ruble will naturally decline and tend to the region of 70-80 per dollar by the end of this year. If the Ministry of Finance does not show aggression in buying foreign currency, resource prices will remain high, and imports will recover slowly, we will remain in the range of 60-65 per dollar even by the end of the year.

Without restoration of access to Russian assets, and it will most likely not be restored until Russian foreign exchange reserves are unfrozen, the picture will remain the same. If something unforeseen suddenly happens in 2023, sanctions against us begin to be lifted, we get access to foreign exchange reserves, which will force us to unblock non-residents’ access to our market, then at some point the dollar exchange rate may rise to 90-100 , because non-residents from unfriendly countries will abruptly leave.

Then the situation will stabilize, because the Russian economy, as in previous years, will remain in surplus both in the current account and in the budget. Now our budget is running with a large surplus, its revenues for the first half of the year have grown by a quarter compared to last year.

“SP”: – How can the new budget rule work?

– Since the euro and the dollar have become absolutely toxic for us, we will talk about buying the currencies of friendly countries – the yuan, possibly the Indian rupee and the Hong Kong dollar. Although I do not know what volumes will be present on the market. If the Ministry of Finance behaves very aggressively, it is possible to achieve a serious weakening of the ruble, which will provoke a sharp acceleration of inflation and other unpleasant consequences.

It is not for nothing that the Central Bank and the Ministry of Economic Development are saying that it is not worthwhile now to deal with the budget rule and the accumulation of a currency cushion, because it has shown its low efficiency. In fact, it only worked during the coronavirus crisis. Now we need to develop those sectors of the economy that are far behind and dependent on imports. It is necessary to purchase technologies and equipment, which will lead to an increase in pressure on the ruble, as well as the budget rule, but the economic effect of this will be more positive, because it will result in economic growth.

Financial Analyst Alexander Egorov believes that sharp movements at the beginning of 2023 from the ruble exchange rate should not be expected, but its gradual weakening is likely.

– Now the rate is formed due to demand from importers and supply from exporters. Other market participants influence it much less. A change in the trade balance will also lead to a change in the exchange rate of the national currency. The rest of the listed risks are also quite probable.

What they might lead to is difficult to predict. Imports will indeed grow, this is an inevitable process. Exports will also be reduced, but hardly anyone can say in what proportions and in what time frame. Purely technically, if the ruble is now in the 55-60 corridor, it can gradually fall to the dollar along the chain with a step of five rubles. This dynamics can be traced, but when the decline will occur and in what ranges is an open question.

If we talk about the end of this year and the beginning of the next, I think the benchmark that most analysts adhere to at the moment is 70-80 rubles per ruble.

“SP”: – A few months ago, Deputy Prime Minister Andrei Belousov called this course as optimal. That is, the ruble should strive for this level?

“Here you need to start from the balance of interests. For exporters, of course, the lower the ruble exchange rate, the better. But there are also domestic economic indicators, and not everything is so clear-cut here. The exchange rate should, on the one hand, provide budget revenues that depend on revenues from exporters. But on the other hand, if the ruble falls sharply, inflation will rise. 70-80 – this is the range that the economy passed and at the same time kept quite stable, apparently, that’s why this benchmark was announced. Whether we will come to him and when is difficult to say.

“SP”: – Is there a risk of a sharp collapse of the exchange rate under some circumstances?

– A sharp collapse or rise usually occurs when unexpected risks appear. The risks of a collapse arose when they began to impose sanctions against Russia. Steady growth began after the Central Bank introduced very strict currency restrictions. Now, in the current architecture, sharp movements are not visible, with the exception of completely fantastic scenarios like the outbreak of a nuclear war, but then there will be no point in talking about any dollar exchange rate.

Most of the real risks have already been implemented, they are assessed and taken into account in the course. Therefore, it should not be subject to sharp jerks. Naturally, movement is possible, but it is unlikely that the dollar will jump by 40 rubles in one direction or another.

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