/ world today news/ The Russian currency has been declared the best in the world recently – and all because the ruble is significantly strengthening. It seems that the powerful sanctions of the West were supposed to collapse the exchange rate of the Russian national currency, but everything is happening exactly the opposite. Experts call what is happening an “extremely unusual situation,” but how did it develop?
One of the leading Western news agencies recognized the Russian ruble as the best currency in the world in 2022. Since the beginning of the year, the ruble has grown by 11% and has become the leader in growth among 31 major currencies, according to Bloomberg. And from March 10, when the dollar and euro reached their maximum of 121.5 and 132.4 rubles, the exchange rate collapsed on May 5 to two-year lows of 65.3 to the dollar and 69.7 to the euro. For four consecutive trading days, the ruble has mostly been below 70 rubles per dollar. And by Friday morning, May 13, the ruble again strengthened sharply against the dollar (up to 62.63 rubles) and against the euro (up to 64.94 rubles).
It is curious that Turkey and Argentina, which took measures similar to Russia, could not achieve such results: the lira and the peso, on the contrary, fell to a record and could not recover, the agency notes.
What is the secret of what is happening to the ruble exchange rate? It’s all about the actions of the Central Bank and the Government of the Russian Federation, which created conditions for the strengthening of the ruble. Which does not mean that the ruble exchange rate is not real.
The ruble exchange rate began to be called artificial after the government obliged exporters to sell 80% of their foreign exchange earnings on the stock exchange and introduced a rule to sell gas to EU countries for rubles. First 10, and then 20 European companies began to buy Russian gas for rubles. So far, only two countries have refused – Poland and Bulgaria, which were not big buyers of Russian gas and whose contracts ended this year anyway. All this implies large volumes of conversion of foreign currency into national currency on the stock exchange.
“However, the exchange rate of the ruble, as before, is carried out on the stock exchange according to all the laws of the economy, depending on the ratio of supply and demand. In this regard, nothing has changed, so the exchange rate remains real and transactions are carried out on it,” says Vladimir Chernov, an analyst at Freedom Finance.
“An extremely unusual situation has developed in the domestic currency market. The exchange rate of the dollar and the euro is formed in a market way, but in an environment where the demand for foreign currency is artificially limited by a number of restrictive measures,” says Vitaly Manzos, senior risk manager at Alco Capital. What exactly is it about?
On the one hand, the demand for foreign currency was reduced, and on the other hand, the demand for the ruble was sharply increased. “In a general sense, in March of this year, the scheme for the formation of the exchange rate of the ruble, which had been developing for many years, took place. First of all, this is due to the removal of the budget rule. So a very large regular buyer of the currency suddenly left the market,” says Manjos. Also, non-residents were prohibited from selling assets denominated in rubles, and speculative demand for foreign currency was frozen (due to a 12% commission).
An important role was played by the sharp decrease in imports from the EU and the USA, which again sharply reduced the demand for dollars and euros. Few people need them because there is nothing to buy from them. “Not only temporary logistics delays play a role here, but also the reduction of purchasing power in the country. In addition, during the weakening of the ruble, some imported goods were purchased and imported at high prices. We now stock overpriced items that are not selling well. But in order to bring new cheap stocks into the country, it is necessary to sell the old ones,” says Manjos.
On the other hand, the demand for the ruble grew due to the demand for the sale of foreign exchange earnings by exporters, the conversion of gas payments into rubles and a number of other measures. “As Russia plans to switch to mutual payments in domestic currencies with China, India, Brazil, Iran and the EAIS countries, the ruble will continue to be needed in large volumes,” says Chernov.
Finally, the more expensive the ruble, the lower the inflation rate will be, Chernov adds. The weekly price increase has already fallen to 0.1%, which is already close to the weekly growth rate in line with the Bank of Russia’s inflation target. “In Russia, the fall in inflation was mainly influenced by the sharp increase in the Central Bank’s main interest rate to 20%. It was after the increase in the price of all loans that the rate of inflation began to decrease, but here there is also a small merit of the expensive ruble, “says Chernov.
“There is an atypical situation with retail prices in the country, as well as with the ruble exchange rate. At the household level, it is clear that the prices of imported consumer goods have started to return to an adequate level after the sharp increase in March. This applies above all to the highly competitive consumer electronics market. At the same time, highly inflated prices in grocery stores remain high. This also applies to food products with a small component of imported components in the cost price. Obviously, we are dealing with a changed structure of consumer price inflation. Under the new conditions, some groups of goods and services will become relatively more expensive. But some groups of goods at the same time can become relatively more affordable, “says Manjos.
Turkey and Argentina failed at this currency trick, although their governments also restricted capital movements. “However, they did not arrange such sales of foreign currency on the exchange, as our exporters are doing now,” Chernov points out.
But in general, the nature of the crisis in these countries is very different from what is happening in Russia. “To draw a direct parallel between the dynamics of the Russian ruble, the Turkish lira and the Argentine peso (as Bloomberg does) is incorrect. The weakening of the currencies of Turkey and Argentina in recent years is solely due to their economic problems. They were not subject to external sanctions and did not impose counter-sanctions. In Russia, the main stimulus for a sharp devaluation of the ruble is geopolitics, not the obvious worsening of the economic situation in the country,” says Manjos.
What’s next for the ruble? Manjos says that the exchange rate of the ruble for the coming months is not predictable, as it is only partially dependent on economic factors and to a greater extent depends on the decisions of the regulator, which can be unpredictable. That is why experts now discuss more about what exchange rate of the ruble is convenient for the economy and the budget, because in theory the Central Bank should strive for it.
As long as the rule of selling 80% of foreign exchange proceeds is in place, the ruble will continue to strengthen, Chernov says. But the Central Bank has already announced a reduction in the rule for selling up to 50% of foreign exchange earnings.
The 2022 budget includes an exchange rate of 72.1 rubles and the price of Russian Urals oil at $44.2, that is, the budget should have received 3,186 rubles per barrel of oil. “At the current price of 78.71 dollars per barrel, our budget is satisfied with the dollar exchange rate of 40 rubles. However, now Russian oil is sold at a big discount, about 30-35 dollars, which means that the dollar rate of 66-74 rubles is currently convenient for the planned replenishment of the budget, “says Chernov.
Therefore, his forecast for the coming months at the exchange rate of the ruble is in the range of 65-75 rubles. However, the expert predicts that if the price of oil rises, which may happen in the next few days after the embargo on the export of Russian oil products to EU countries, then a lower dollar rate will be convenient for Russia. “For example, with the rise of Brent oil to $120 per barrel, the planned filling of the Russian budget will also be provided by the dollar exchange rate of 53-57 rubles.” But in our opinion, then the Central Bank of the Russian Federation will cancel the rule on the sale of foreign exchange proceeds by exporters to ensure excess budget revenues at a dollar exchange rate of 65-74 rubles, “the source concluded.
“Even with a geopolitical premium on the back of extremely comfortable export prices, the US currency could fall to the 50-55 ruble range. However, whether our monetary authorities really need a strong ruble is a big question. Against the background of the strengthening of the vector of social policy and serious economic challenges for the state, the range of 70-75 rubles remains quite comfortable,” says economist Andrey Loboda, director of external relations at BitRiver.
Translation: V. Sergeev
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