/ world today news/ The Central Bank is taking extraordinary measures to support the national currency and these measures came into effect immediately. As early as Monday evening, the exchange rate of the dollar, not the ruble, began to fall, and significantly. What measures are we talking about and what will be the rate of the Russian currency in the near future?
The ruble against the dollar fell on Monday to 101.745 and thus updated the minimum since March 2022. In the evening, however, the Central Bank came to the defense of the ruble and already used heavy artillery. The central bank announced that on August 15 it will hold an extraordinary meeting on the main interest rate. These verbal interventions immediately stopped the fall of the ruble.
Moreover, by the evening the ruble recovered those losses and gained 3.7% from the current intraday high and 1.2% from last week’s closing levels. That is, the ruble managed to recoup almost all the losses it suffered on both Friday and Monday.
What happened to the ruble? Why did it break the psychologically important limit of 100 rubles per dollar? How sharply will the Central Bank decide to raise interest rates on August 15, and to what levels should the Russian currency strengthen?
To begin with, let’s outline the reasons for such a deviation of the dollar for 100 rubles, they are not so obvious. The main factor in the form of a decrease in exports and an increase in imports, which all experts talk about, did not increase, but on the contrary, weakened. From this point of view, such a deep decline in the ruble seems strange.
Advisor to the President of Russia Maxim Oreshkin called the main source of the weakening of the ruble and the acceleration of inflation the soft monetary policy of the Central Bank. If you look at the structure of the formation of money supply, a key role in the acceleration of demand, according to him, was played by lending to companies and the population. These figures significantly exceed the budget deficit of the budget system, which since the beginning of the year amounted to only 1.5 trillion rubles.
“The exact reasons for such ‘swings’ are unclear, but it appears that the ruble is now ignoring both fundamental and technical factors.” That is, it does not notice either high oil prices, or a reduction in the Urals discount to Brent, or the beginning of improvements in Russian oil exports. On the other hand, if it moved only in accordance with historical dynamics, this would mean that competent stock speculators would not start buying dollars at 99-100 rubles – it is too expensive. Today there are few speculators in the foreign exchange market in Russia due to restrictions and the greater proximity of the Russian economy, and Russian stock market players are today more interested in assets in rubles, for example, in shares of Russian issuers, than in foreign currency,” says analyst Nataliya Milchakova.
“It can be assumed that the weakening of the ruble is influenced by the outflow of capital abroad. In such a situation, the ruble without support can continue to weaken by 5-10% per month,” says Vladimir Evstifeev, head of the analytical department of Zenit Bank.
All these factors mean one thing: “the ruble already “understands” only the signals of the Central Bank of the Russian Federation,” Milchakova believes. Therefore, an urgent meeting of the Central Bank on the main interest rate is more than logical.
“The current exchange rate has deviated significantly from fundamental levels and is expected to normalize in the near future. The weak ruble complicates the restructuring of the economy and negatively affects the real income of the population. A strong ruble is in the interest of the Russian economy,” said Maxim Oreshkin.
Interestingly, the Central Bank departed from the previous practice of gathering and suddenly raising the interest rate without any prior announcements. Now the regulator warned about this a day earlier. And this had a colossal effect – the fall of the ruble stopped and it began to strengthen. Now this effect must be reinforced at least by a real increase in interest rates.
“Increasing interest rates and the yield on savings in rubles may limit the flow of capital abroad. If the support of the Central Bank leads to an increase in the inflow of foreign currency into the country, then the dollar rate may return to 85-90 rubles, “Evstifeev does not exclude.
“It is difficult to predict how much the rate will be increased tomorrow. In the minimum scenario, the base rate can increase to 10%, but this may not be enough. If the Central Bank focuses on the yield of long-term federal bonds, then an increase to 11-12% is possible. A stronger increase is also possible, although this seems less likely for now. After an extraordinary increase in the interest rate, the Central Bank will review the development of the situation, and perhaps there will be no need to increase the interest rate at a scheduled meeting in September,” says macroeconomic analyst Olga Belenkaya.
Another intrigue is whether the Central Bank will limit itself only to raising the interest rate, or is preparing other measures to support the ruble.
“The Central Bank of the Russian Federation may tomorrow raise the main interest rate by at least 1.5 percentage points to 10% annually. But to stabilize the ruble and return to the corridor of 80-90 rubles per dollar, which the Russian government previously called optimal for the population and exporters, it will be necessary to either raise the rate at least two more times before the end of the year. or to tighten restrictions on currency transactions. In principle, if the main interest rate rises to 10-11% per year, then the dollar may fall to 95 rubles by the end of August, and possibly even to 90 rubles by the end of September,” says Milchakova.
In March 2022, along with the increase in the interest rate, the Central Bank also introduced strict currency restrictions, in particular on the withdrawal of capital from the country and on the mandatory sale of export earnings. These measures make it possible to maintain the inflow of foreign currency into the country and strengthen the ruble. However, will the currency restrictions be announced along with the key rate decision?
Belenkaya recalls that in July of this year, the head of the Central Bank, Elvira Nabiulina, said that in Russia it is worth leaving only those currency restrictions that are significant as a response to sanctions, the rest “should be removed.” And on Friday, Central Bank Deputy Chairman Alexei Zabotkin also disagreed with the view that the ruble’s weakening could be influenced by increased capital outflows.
Translation: V. Sergeev
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