Natalia Orlova about possible ruble collapse: ''Even if there is an external shock, a movement will be at the year end''

Experts about the ruble bubble and possible collapse of the Russian currency

Natalia Orlova about possible ruble collapse: ''Even if there is an external shock, a movement will be at the year end'' Photo: Maksim Platonov

The currency market in Russia can face a shock soon again. Some functionaries are coming to this conclusion. Particularly, in opinion of Russian president's businessmen rights ombudsman Boris Titov, at this moment a bubble swelled in the Russian currency market due to a too high ruble rate. From Titov's point of view, it happened because of investors' capital flow who play with interest rate differences in different countries. Such a flow is called carry trade. As Boris Titov thinks, this bubble can burst, which will lead to a sudden fall in the ruble rate.

However, in Central Bank Director Elvira Nabiullina's opinion, carry trade doesn't have a significant impact on the appreciation of the ruble, consequently, there are no risks of the ruble's sudden fall. However, these days head of Ministry of Economic Development Maksim Oreshkin reproached the Bank of Russia for a strict monetary and credit policy, which, as he supposes, results in an appreciation of the national currency and impedes the country's economic growth. The minister thinks it is necessary to actively reduce the key rate, refuse a check to price growth and support of the ruble rate. Oreshkin believes the situation with the growth of real interest rates performed by the Central Bank and serious ruble appreciation are key risks of Russia's economic development.

Realnoe Vremya surveyed experts of the financial market and found out whether they think that Russia will face a sudden fall of the national currency that has just gained value or if the currency rate will calm down in the short run. As strange as it might sound, the experts' opinions were different.

  • Natalia Orlova

    Natalia Orlova senior economist at Alfa Bank, senior economist and director of Macroeconomic Analysis Centre

    I don't think the current situation can be called a bubble because the rate is fluctuating and the rate dynamics is defined by market factors. Undoubtedly, we have been seeing a grown interest of portfolio investors in Russia since December 2016 because expectations of possible warming in the relations between Russia and the USA have appeared. In addition, Russia keeps quite high interest rates in comparison with other countries, it also attracts investors. It should be understood capital flow is also maintained by quite high oil prices. In other words, in conditions when oil prices don't reduce, investors think the economic dynamics in Russia will also be fine, of course. This is why it is difficult to call this flow speculative, these are quite rational expectations. On the other hand, as the rate is fluctuating, it is absolutely fine that the rate can deviate from its fundamentally justified values at times. I think this year fundamentally justified value is from $60 to 65 per dollar. But I would like to remind that the fundamental value did not differ from this range in previous years. Nevertheless, we saw a rate of 70 and 80 rubles per dollar. The thing is that the deviation is moving in another direction. On the one hand, I agree that this is a deviation from the fundamentally justified value. But, on the other hand, there's no telling we need to return to the level fundamentally justified value very soon. I think some external shock is needed to launch depreciation of the rate. If oil continues growing and capital will continue flowing to Russia, I think it will be quite difficult to expect a fast return of the rate to the interval of 60-65 in such conditions.

    Oreshkin has never said the ruble needed to be artificially reduced. The minister by default can't pronounce such things. He told the rate was restrengthened now and thinks the current levels are interesting to purchase the currency. But it doesn't mean that for this reason the rate needs to move somewhere. The currency can be purchased at the current levels during the year and during two years – I don't know how long the rate will be at these levels. Don't distort the truth – there were absolutely accurate, measured quotes.

    Formally, I forecast 65 rubles per dollar at the year end but under the conditions of an external shock because the data that is appearing at the moment says that the rate will quite probably be stronger. On the other hand, if even there is an external shock, a movement will be at the year end, not in the next months.

  • Bogdan Zvarich

    Bogdan Zvarich analyst at Finam

    At this moment, I don't see any reason for depreciation of the Russian currency. The situation in the energy source market continues being quite fine, we even don't exclude a further growth of oil prices, which will favour a stronger Russian currency against dollar and euro. At the same time, some growth of geopolitical tension, tension in relations between Russia and the USA – it was also neutralised by Tillerson's visit quite fast. It was expected to have worse results than we got as a result. Consequently, the ruble managed to recover its positions quite quickly. Now it is fluctuating near maximum results of the year, at least, against the dollar. We don't exclude they can change in the next sessions because data of the American Petroleum Institute will appear on Tuesday, and the Department of Energy will tell about hydrocarbon reserves in the States then. If they show the next decrease, it will support the energy source market and favour appreciation of the ruble. In addition, we need to remind that we have an OPEC+ agreement on production cut in the world. Everything indicates it will be extended in the second half of the year at the May session.

    In my opinion, there is no bubble in the market now. The ruble corresponds to the oil we are seeing. We don't need to speak about the bubble. At the moment, we expect the positive dynamics in the energy source market to continue. Consequently, we don't exclude the ruble will become stronger further on. Those purchases made by the Central Bank in favour of the Ministry of Finance doesn't have a big impact on the market. The market also ignores all verbal interventions of the government. Strong ruble is both a positive and negative points for the Russian economy. The negative point is that Russian producers will lose competitiveness. But there are positive factors that should not be forgotten – expensive ruble gives companies an opportunity to modernise and expand their production.

    The government is already trying making an effort to weaken the ruble – the purchases, verbal interventions. But now the reaction of the market is not very serious. The Ministry of Finance can augment volumes of currency purchases, of course. The question here is how much it is ready to buy.

  • Aleksandr Razuvaev

    Aleksandr Razuvaev director of Analytic Department at Alparis

    Carry trade can last for long, especially if the rates are in line with expectations, especially if the Bank of Russia's rates gradually reduce while the Federal Reserve's rise of the rate will be in line with expectations. I don't think the ruble was repurchased. I understand that our economic functionaries dream of a weak ruble. They explain it by care for real sector, import substitution, stimulation of economic growth. Most importantly, they want the budget because a weak ruble automatically leads to the absence of problems with the budget. However, I am for a strong ruble. It is a higher level of quality of life, imported goods, trips abroad, import of technologies, growth of our companies' capitalisation, low inflation and low interest rates. And again, from a geopolitical point of view, if Russians' salaries are much higher in dollars than that of our neighbours in Kazakhstan and Belarus, citizens of these countries go to work to Russia. And, consequently, they are prepared for Eurasian integration. I don't think, as Oreshkin says, the rate will be at 68 at the end of the year. Of course, there are risks that it will weaken. But I think it will be lower – at 62-64. Nevertheless, our Central Bank has not been interfering in the market for two years. Consequently, everything will depend on market factors. As for the difference in interest rates, it is a market situation. At the same time, I don't think the Bank of Russia's key rate is boosted somehow. In my opinion, our real inflation is 7-8%. In this case, the rate of 9,75% looks quite fine. I think the ruble will remain at the current levels with a small tendency for appreciation in the short run.

  • Nikolai Laptev

    Nikolai Laptev director of Open Broker JSC branch in Kazan

    Nowadays the ruble rate is fluctuating like the market. On the contrary, the Russian ministry of finance has carefully played against too strong ruble by purchasing the currency since February. However, the interventions of the ministry of finance are quite modest.

    We should not be talking about the bubble in the ruble rate. Compared to current oil prices that the Russian balance of payments depends on, the ruble rate is a bit higher. 62-63 are more stable levels for USD/RUB at current prices for black gold. If oil prices fall, these levels can move towards 67-69. Local reinforcement of global risks and correction of oil prices can be a catalyst of the ruble fall. Head of the Ministry of Economic Development Oreshkin is not urging to collapse the ruble rate but is urging the Central Bank to reduce the rates to make loans affordable for domestic production and carry trade speculations of foreign investors less attractive. In this case, the ruble rate will weaken but not a lot.

    We don't exclude the ruble rate will change against the dollar in the second quarter to 62-63, to 67-69 at worst. After correction, we bet the ruble will become stronger in a long-term perspective.

  • Maksim Osadchy

    Maksim Osadchy director of Analytic Administration at CFB

    Today the ruble value is significantly higher. The ''fundamental'' value now is about 64 rubles per dollar. First of all, carry trade is the cause of the considerable high value of the ruble. The moderate strict policy of the Central Bank that maintains the key rate at a level that is far higher than inflation is the cause of carry trade. Now inflation is approaching its target level of 4% by the end of 2017 while the key rate is 9,75%. High interest rates against the background of the ruble appreciation create powerful stimuli for foreigners to invest in Russian papers. Now foreigners already account for 29% in the federal loan bond market, and this number is growing. With today's oil price, the tendency for strong ruble can stay, but a change of the trend is inevitable. The question is when the market will show the ruble its real price and how strictly. I think we will see a rate of 100 rubles per dollar in the near future. However, now the tendency for ruble appreciation can continue due to carry trade.

By Maria Gorozhaninova, Maksim Matveyev