/ world today news/ The Russian ruble has experienced unprecedented fluctuations in the last month. It first reached 120 rubles per dollar, and then returned almost to its original position of 83 rubles. Behind this economic miracle is the fine and precise management of the financial system, which the West dealt an unprecedented blow. But what will happen to the ruble after that?
After the start of the Russian special operation in Ukraine and the imposition of sanctions against Russia, the dollar rose to 120 rubles and the euro to 127 rubles. A new historical bottom was reached for the Russian currency.
The exchange rate of the ruble fell by 30% at the end of February 2022, but this cannot be called the biggest decline of the ruble in the history of modern Russia. In 1992, the introduction of a free exchange rate led to a 223-fold drop in the ruble: from 56 kopecks to 125 rubles. During “Black Tuesday” in 1994 (October 11), the exchange rate of the ruble against the dollar fell by 38.5% from 2,833 rubles to 3,926 rubles. And during the bankruptcy of 1998, the ruble depreciated 3.2 times against the dollar: the dollar rose from 6.5 rubles to 20.83 rubles in a week, recalls Artyom Deev, head of the analytical department at AMarkets.
This time, the ruble managed to strengthen in a rather short period. Already last week, it began to grow rapidly, and by Tuesday, March 29, it had strengthened to almost 83 rubles per dollar and up to 92.1 per euro. This happened for the first time since February 25.
How did the Russian currency manage, in such a difficult situation of uncertainty and unprecedented geopolitical pressure, not only to strengthen after its historical peak, but also to almost return to the course before the start of the special operation in Ukraine?
First, the ruble was affected by the measures introduced by Russia to protect the affected financial market. They stopped the fall of the ruble and helped it strengthen a bit. In particular, the Central Bank raised the interest rate, introduced a ban on the sale of cash dollars to the population and restrictions on withdrawing deposits in foreign currency. In addition, exporters were obliged to sell 80% of foreign exchange earnings, and for individuals the Central Bank introduced a commission of 30% for conversion operations on the Moscow Exchange. At the same time, imports into the country are decreasing. The central bank prohibits non-residents from closing positions in rubles and withdrawing funds abroad, which can be several trillion rubles. All this logically led to a decrease in the demand for currency on the stock exchange.
But a serious increase in the demand for rubles ensured Russia’s counterattack. The Kremlin gave an ultimatum to the EU and other unfriendly countries that they will be ready to sell gas only for rubles, because it has become pointless to sell it for dollars and euros. Sense will return only if the West lifts sanctions against Russia, which is out of the question. This is equivalent to all foreign exchange receipts from gas supplies to exporters having to be converted into rubles.
According to the consulting company ICIS, in the period from the beginning of the special operation until March 15, Gazprom earned about 340 million dollars a day from the sale of gas. In January, its revenue was $9.5 billion. Converting such sums into rubles and pouring them into the Russian market is a major strengthening factor.
Now the care of the Russian ruble is entrusted not to Russian, but to foreign companies that buy gas in Russia. “This measure will support the ruble not with 80% of exporters’ foreign exchange earnings, but with 100% of gas sales to the EU, which is about a third of Gazprom’s total gas exports to non-CIS countries. In addition, the authorities’ requirement that exporters sell 80% of foreign exchange earnings is an anti-crisis measure and may be lifted when the situation in the foreign exchange market normalizes. And payments to external gas users in rubles provide the Russian currency with long-term support and tangible fundamental security,” says Vladimir Evstifeev, head of the analytical department of ZeniT Bank.
When the ruble payment scheme starts working in the gas sector, then the transition to ruble payment for all other export goods of Russia, namely oil, grain, metals, will become a matter of technology. This event is based on a revolution in world trade where the dollar rules. Other countries, particularly Asian ones, may want to follow Russia’s successful example.
Now that strategic counterattack is targeted. The ruble did not rise quickly due to the fact that they began to buy it on the market. However, European buyers still don’t have the ruble, says Deev. Mainly Russian exporters are active. And the end of March supports the currency.
“The tax period in March is one of the biggest. Due to the peculiarities of the payment of income tax, its amount for basic taxes amounted to almost 3.5 trillion rubles in March against 2.2 trillion rubles in February. Probably, the exporters held the currency until the last day of payments, counting on a possible weakening of the ruble, and when this did not happen, they began to actively sell export earnings,” says Evstifeev. At the same time, importers are not very active, so the supply of currency significantly exceeds the demand, which also leads to a strengthening of the exchange rate.
On Tuesday, geopolitics supported the ruble: after the Turkish negotiations between Russia and Ukraine, the first step towards a peace agreement was taken. On Wednesday, March 30, the ruble continued to strengthen, but not for long. Fixed at 84 rubles per dollar and 94 rubles per euro. What is the limit of the possible strengthening of the ruble?
Two scenarios can be considered. But even in a scenario where Russia and Ukraine reach a peace agreement and provide security guarantees with the participation of the West, it will be difficult to return to 75-80 rubles as before. “Strengthening to 80 rubles to the dollar is possible, but the lower exchange rate of the dollar may create risks for the replenishment of the Russian budget. Therefore, when the dollar rate falls in the range of 75-80 rubles, verbal interventions by the authorities may follow, and then the removal of measures to support the ruble, “says Evstifeev.
“Currently, we can see the dollar below 80 rubles as a reaction to the improvement of the geopolitical situation. But for a longer period, it is more likely that the ruble-dollar pair will return above 90 rubles, “said Dmitry Babin, an expert on the stock market.
The peace agreement will ensure the stability of the ruble. “The ruble may stabilize and anchor in the range of 80-90 rubles to the dollar, given the new risk premium, even if the most “tough” sanctions are lifted, in particular if they “unfreeze” the reserves of the Central Bank and banks and removed restrictions on payments to Euroclear. Sanctions of medium severity will remain – and the confidence of non-residents can no longer be restored. The fate of the “hard” sanctions is also not clear, since the main condition for their removal is a guarantee that Russia will not move to a second military special operation,” said Iskander Lutsko, chief investment strategist at ITI Capital.
If there is a new escalation of the conflict in Ukraine, then the ruble will begin to weaken in early April, as soon as Russian exporters stop selling the currency. The ruble may return to 90-100 per dollar, and some experts expect further weakening.
Deev notes that it is difficult to predict the exchange rate, since now any positive moments in geopolitics can lead to a strengthening of our currency, and any negative ones, for example, the next Western sanctions, will put pressure. But according to him, neither the dollar nor the euro will rise above 100 rubles in the near future.
Given that non-residents are not allowed on the stock exchange and many assets have been converted into rubles, the situation may lead to the formation of a second exchange rate or a black market, and the Central Bank of the Russian Federation may fix the ruble, believes Andrey Maslov , an analyst at FG Finam, adding that the likelihood of this happening is small. According to him, the ruble will soon fall again and will trade above 100 per dollar and 120 per euro. “When the country’s economy begins to recover from the conflict in Ukraine and the capital markets open up and restrictions are lifted, the ruble may fall,” the expert believes.
Translation: V. Sergeev
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