Ruble’s collapse: who’s guilty and what will happen

7 facts about the ruble’s fall and the situation in the Russian stock market

August has been the most unlucky month for the ruble this year: the Russian currency has fallen by 6,5-7% against the dollar and the euro since the beginning of the month due to confirmed and only announced sanctions as well as the bad external background. The stock market also had a fever: Sberbank and VTB shares have decreased by 14-15%, while the Ministry of Finance had difficulty in attracting the public debt. Realnoe Vremya tells about the causes and consequences of this situation.

Ruble's going down

The ruble had been falling during the whole last week except Friday. Meanwhile, the dollar's price has reached a record high since the beginning of this year due to auctions on Thursday morning. The dollar's rate notably rose by 1 ruble from Monday to Thursday, while the euro added almost 2 rubles for the same term. The dollar has had 6,5% — from 63 to 67,5 rubles per $ since the beginning of August; the euro has risen by a bit more than 7% — from 73,5 to 78,7% rubles per €.

Not only sanctions are guilty. Not only Russia feels bad

Sanctions and the general negativism in markets of developing countries puts pressure on the ruble and shares of Russian companies. Moreover, it's quite hard to point out one of these two factors, says Denis Gorev from General Invest. The US State Department imposed the sanctions, which were to come into force on 27 August, due to the ''Skripals case''. At the first stage, US companies will be prohibited from supplying dual-use goods to Russia. The second stage, if it comes into force, is an embargo on any import from Russia and all exports except food.

Some experts think these banks can face difficulties when paying in dollars. Photo: pxhere.com

However, other sanctions, which haven't been approved, were more painful. Their authors, Senator Lindsey Graham and John McCain, offer to restrict US investors from a possibility of purchasing Russian public bonds and allow US president to ban specific transactions of seven Russian banks. We're talking about transactions linked with the property in the USA or belong to US citizens. The restrictions can affect Sberbank, VTB, Gazprombank, Rosselkhozbank, Moscow Bank, Promsvyazbank and VEB. Some experts think these banks can face difficulties when paying in dollars.

Not only the ruble but currencies of many other countries have been in the turbulence zone. Nervousness has started to reign due to Donald Trump's trade wars in developing markets. This weakened the Brazilian real, Turkish lira, Chinese yuan, Argentinian peso.

Central Bank did harm. But it helped later

The Central Bank didn't allow the ruble to strengthen either. It has been actively purchasing the currency in the market during the week. The regulator that many criticised for the absence of verbal interventions finally announced on Thursday that it would stop purchasing the currency till the end of September to stabilise the rate. This calmed the market down a bit: immediately after the statement, the Central Bank started to change, though the day ended with a reduction.

It's a question if the decision of the Central Bank brought peace. Denis Gorev thinks it's not for long. The ruble will anyway remain under pressure in the long-term with the presence of sanctions and bad situation in foreign markets.

Sberbank's shares have cheapened by 14,3% since the beginning of month – a common share cost 210,6 rubles on 1 August but the final price totalled 180,4 rubles on Friday. Photo: Oleg Tikhonov

Sberbank and VTB among victims

The news about possible sanctions against public banks made a powerful blow on their capitalisation. Sberbank's shares have cheapened by 14,3% since the beginning of the month – a common share cost 210,6 rubles on 1 August but the final price totalled 180,4 rubles on Friday. VEB's bonds in euro have also collapsed, the state used them to finance its projects. The situation in the market, in general, wasn't very favourable. There has been high volatility during all August. As a result, Moscow Exchange's index has risen by 0,6% for the month (from 24 July to 24 August), while RTS has lost almost 7%.

Foreign investors leave

The Ministry of Finance is finding it more difficult to sell federal bonds. Sanctions make foreigners refuse investments in Russian bonds, this leads to their sale. It became known on Friday that the share of non-residing bond holders had decreased to 28% — to the lowest bar in 1,5 years. Without wanting to raise the profitability of public bonds due to the bad market situation, the finance ministry cancelled the public bond auction scheduled for 22 August. The ministry promised to renew the placement ''after the situation in the debt market stabilises''.

MED waits for inflation to accelerate

Reuters said citing its own sources that the Russian Ministry of Economic Development had to worsen the outlook on the ruble rate and inflation. If earlier the average dollar rate in 2018 was forecasted at 60,8 rubles per $, now functionaries are expecting it to total 61,7 per $. Inflation's outlook has been raised from 3,1 to 3,4%. However, the Bank of Russia whose forecasts, as a rule, are closer to reality thinks inflation will be much higher – 3,5-4%. The Ministry of Economic Development hasn't so far officially announced the reconsideration of parameters. Experts also told about a possible rise in inflation due to the weak ruble.

The Bank of Russia whose forecasts, as a rule, are closer to reality thinks inflation will be much higher – 3,5-4%. Photo: Kuba / wikipedia.org

Unclear prospects

It's easier to call the ruble's prospects unclear. On the one hand, considering high oil prices and interruptions of the Central Bank's interventions, the tendency for strengthening, which ended late last week, can remain. At the same time, experts are inclined to think positions of the Russian currency remain under question while there is a threat of sanctions. In addition, other factors, including the US Federal Reserve's plans to raise rates further on, can play against the ruble too.

By Artyom Malyutin
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