/ world today news/ In 2022, the Russian ruble became one of the few currencies that strengthened against the dollar. A strong ruble has greatly helped our economy and the Central Bank, but it is gradually starting to weaken. The return of the dollar to 70 rubles and above is only a matter of time, experts believe. How has a strong ruble helped the economy this year, and why will its strength only hinder in 2023?
In 2022, the ruble strengthened by 18% against the dollar. This is a unique situation. Only the Armenian dram can boast such strong dynamics. Many currencies have weakened strongly against the dollar this year.
The strengthening of the ruble is due to two main factors. First, capital controls allowed the ruble to stem foreign capital outflows. Second, the ruble naturally strengthened against the backdrop of a trade surplus as export earnings rose and imports fell sharply.
The uniquely strong ruble, oblivious to sanctions, oil or other external factors, has done its important work this year.
“The high exchange rate of the ruble during the sanctions stopped the spiral of inflation from unfolding, because against the background of its appreciation, all imported goods became cheaper. And they increased export earnings, which already jumped significantly due to the increase in the price of export products of the Russian Federation on the world market. “Some of them started to rise in price already during the pandemic due to disruptions in supply chains, so the income of many Russian exporters this year was at record levels, despite the strengthening of the ruble,” said Vladimir Chernov, an analyst. For example, Gazprom’s net profit in the first half of the year grew 2.6 times to a record 2.5 trillion rubles.
“I can also assume that in the context of increasing external restrictions, wholesale purchases of foreign components that are not produced in Russia are made at a significant margin. That is, the volume of such purchases increased, and the strong ruble made these goods more profitable for Russia,” adds Chernov.
“The strengthening of the ruble has helped reduce inflationary risks that have emerged amid the turmoil in the Russian economy this spring. That is, indirectly, the strong ruble helped the Bank of Russia to reduce the key interest rate and normalize lending,” said Alexander Potavin, an analyst.
In addition, the funds of the National Welfare Fund were allowed to be used to finance the deficit of the federal budget in 2022, so there was no need for artificial depreciation of the ruble, adds Vladimir Evstifeev, head of the analytical department of Bank Zenit. However, the situation in 2022 was exceptional and is unlikely to be repeated in 2023 for a number of reasons,” he said.
Experts expect the ruble to depreciate by the end of the year and continue the devaluation in 2023.
First, there is the threat of a decline in Russia’s export earnings amid the imposition of a historic EU embargo and price cap on Russian oil. “This will ultimately worsen the balance of payments and trade situation of the Russian Federation, but we will see the consequences of this through the ruble exchange rate closer to the spring of next year,” Potavin said. By the end of December, domestic oil exports could lose about 0.5 million barrels per day, Alexander Bakhtin’s investment strategist estimates. From the new year, volumes may increase, as the embargo on Russian oil products will come into force.
Second, the blow to Russian exports is immediately reflected in the country’s income. Revenues in the oil and gas budget previously represented 35-40% of total revenues, and this year their share will probably grow to 45%, Evstifeev believes.
“The more expensive energy resources will cost on world markets, the more money Russia will get from selling them in foreign currency. But in order to replenish the treasury, these funds must first be converted into the Russian national currency, so the cheaper the ruble is against these currencies, the more funds will go to the Russian budget in national currency,” Chernov explains.
The embargo and price ceiling on Russian oil are increasing uncertainty in the Russian economy. “In such a situation, it will be more difficult for the Ministry of Finance of the Russian Federation to maintain the previous level of budget revenues, which means that it will be more useful to have a weaker ruble exchange rate,” Potavin said.
If there are difficulties in replenishing the treasury, then it will be possible to weaken the ruble through a new budget rule. “Previously, dollars and euros were bought on the stock exchange from the additional profits from the sale of oil to replenish the FNB, and now it is planned to buy the currencies of friendly countries and influence the value of the Russian national currency through cross rates,”, Chernov explains.
The ruble has already risen to 63 per dollar. This is the highest level since early November. “Further growth of the dollar in the region of 65 rubles (this is a six-month maximum) is a matter of the very near future,” said Potavin. By the end of the year, according to him, 65-67.5 rubles per dollar and 67-70 rubles per euro can be expected.
“At the beginning of next year, under the influence of the new mechanism of the budget rule, the rate of depreciation of the ruble may increase sharply, so I expect it to reach 70 rubles per dollar in the first quarter of 2023,” Chernov predicted.
According to him, since the weakening of the ruble will be carried out in half in a manual format through the budget rule, the exchange rate of the ruble will most likely remain at the level of 72-75 rubles per dollar. Since it has already been calculated that such an indicator will be comfortable both for exporters and for the planned replenishment of the budget.
“For the time being, we adhere to these guidelines, but we do not rule out an increase in volatility or the emergence of new external pressure factors on the Russian national currency, as we expect the introduction of new restrictive measures against the Russian Federation and a reduction of the ceiling on the price of its oil,” says Chernov.
“The return of the dollar to the level of 75 rubles is only a matter of time,” Potavin also believes.
However, Alexander Bakhtin does not rule out that the devaluation of the ruble will turn out to be less significant. “On the one hand, the exchange rate of the ruble against the dollar at the level of 70 plus, of course, would be more convenient from the point of view of exporters’ income and filling the budget. On the other hand, the levels of “60 plus” for the dollar for exporters and the budget are not critical, and a strong and stable ruble is still important for importers in the context of the readjustment of foreign trade logistics disrupted by sanctions,” the expert claims. According to him, the exchange rate of the ruble in 2023 may fall to 68-70 per dollar, but now it is difficult to predict specific levels, since many variables will affect the exchange rate – from the dynamics of GDP and the state of the trade balance to geopolitics and the demand for ruble debt issued.
Translation: V. Sergeev
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