/ world today news/ The dollar is now worth almost 93 rubles, the euro – about 101. The Chinese currency also rose sharply – up to 12.8 rubles. The last time the ruble was this weak was last spring. This time, however, there is nowhere to wait for support, there will be no sharp turn. The Russian budget needs an even weaker ruble. Thus, the economy adjusts to changes in the structure of exports and imports.
The ruble broke through the psychologically important level of 90 per dollar and continues to trade already in the region of 93. The euro has already risen to 101 rubles. These are the highs since the end of March last year. The Chinese currency jumped to 12.8 rubles, which happened for the first time since April 19, 2022.
“The dollar-to-ruble exchange rate rose 6.1% in the past week alone, and in June the dollar-to-ruble rate jumped 10.4%.” This is the strongest increase since December last year. Since the beginning of the year, the ruble has depreciated by 31.3%,” notes Andrey Maslov, analyst.
The main reasons remain and new ones have been added. The main reason is the growth of imports with a decrease in exports. By the summer of 2023, the volume of imports of goods and services into Russia had fully recovered and reached pre-war levels, Maslov said.
Second, the currency from export sales often does not reach the Russian market. Russia sells half of its crude oil for export to India for rupees, without the ability to convert it into rubles or any other currency, so this money remains dead weight in the accounts of Russian companies. This issue has begun to be resolved: several Indian refineries are ready to buy Russian oil for yuan.
“The currency that comes to the domestic foreign exchange market often does not reach it, as it remains in external accounts of export companies outside Russia. In addition, there remains a high demand for foreign currency on the domestic market by individuals and companies, who then transfer it to their foreign accounts,” notes Maslov. All this creates a shortage of currency and an increase in its value.
The increase in capital outflow is also associated with the resumption of securities payments in “Euroclear”. “Some brokers offer to buy securities abroad for foreign currency in order to sell them on the Russian market. This creates additional demand for the currency,” notes the expert. Finally, the attempted military turmoil caused investors to withdraw from safe-haven currency instruments.
The ruble was also under pressure from the Finance Ministry’s decision to almost halve foreign exchange interventions in the yuan. At the same time, demand for the yuan is rising. “The share of Russian foreign trade payments in Chinese currency is increasing, while import volumes exceed export volumes in yuan, leading to a deficit. In addition to significant market movements, speculative strategies are added, which reinforce the feeling of a shortage of yuan,” says Vladimir Evstifeev, head of the analytical department of Bank Zenit.
Despite the weakening of the ruble, financial authorities see no reason to panic. The Central Bank again issued a statement that this does not threaten financial stability.
“The central bank does not see any risks for financial stability, since the weakening of the ruble is precisely the adjustment of the economy to the changed currency structure of the balance of payments. The Ministry of Finance also remains neutral, as at the current level of oil prices, the budget is more likely to benefit from the weak ruble,” Evstifeev said.
This year’s budget includes basic revenues from oil and gas at the level of 8 trillion rubles. To provide such revenues, a barrel of oil should cost 4,800 rubles. However, now it is necessary to take into account the voluntary reduction of production and exports that is Russia. Given this fact, the budget-friendly price of oil in rubles can be 5200–5300 rubles per barrel. At the current dollar prices of Russian oil, the dollar should be at the level of 91-96 rubles. It is also worth adding 3–5% to the speculative component in the dynamics of the exchange rate, and taking into account that part of Russian exports is sold in rubles,” analyzed Evstifeev.
This means that in order for the budget to receive the planned revenues from oil and gas, the dollar exchange rate must be even higher than it is now. Keeping oil prices low as they are now.
But there is hope that oil prices will still rise amid Saudi Arabia’s decision to voluntarily cut production by 1 million barrels of oil. And amid Russia’s decision to cut oil exports by half a million barrels since August, on top of the fact that it has already cut production by half a million.
Another point – the weak ruble can support the manufacturing industry. Precisely, according to Prime Minister Mikhail Mishustin, this year is a key factor for the growth of the Russian economy. On the night of July 4-5, he met with President Vladimir Putin. Mishustin expects that this year Russia’s GDP could exceed 2%, which is higher than the forecast of the Ministry of Economic Development, which expects growth of 1.2%.
“The weak ruble makes imported goods less affordable, provoking more active import substitution. This can support the manufacturing industry. On the other hand, the weakening of the ruble is usually accompanied by an increase in inflation, which in turn puts pressure on consumer activity, which negatively affects demand and leads to a worsening of the situation for local producers,” says Evstifeev. However, the central bank has already given several clear signals that it intends to prevent inflation from accelerating, so it could raise interest rates at a meeting in July.
What’s next for the ruble? If before there was still hope for a reverse strengthening of the Russian currency, now experts began to lose hope and rewrite their forecasts for the exchange rate. Thus, “Rosbank” raised its forecast for the end of the third quarter of 2023 from 75 to 87 rubles per dollar.
“It is obvious that without support from the balance of payments side and an increase in the inflow of foreign currency into the country, the ruble is unlikely to return to levels of 70-80 rubles per dollar. Without operational statistics for the foreign sector, it is difficult to say with certainty where the equilibrium exchange rate is. However, conditional calculations show that the dollar exchange rate at the level of 87-101 rubles can satisfy all the goals of the economy and finance, “says Evstifeev.
However, Maslov believes that a 1 million bpd drop in Saudi oil production since July could push the price of oil to $80 a barrel, which in turn should help stabilize the dollar in the $85 range. -90 rubles. For a more significant strengthening of the ruble, however, even higher oil prices are needed, the expert concludes.
Translation: V. Sergeev
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