‘In fact, they are staging oil jihad for us’: experts on ruble collapse

If the Central Bank will keep the national currency and what to do with ruble savings

News about the coronavirus has almost eclipsed news about nosediving oil rates, which updated lasting record lows on 18 March and cost $26,07 per barrel at 18.43 Moscow time, and the falling ruble rate against the dollar (79,985 at MOEX by 18.15). Realnoe Vremya asked experts if the Central Bank’s interventions would save the national currency, if only oil was guilty of the falling ruble and what Russians should do with the savings that would remain after a feverish purchase of buckwheat in chain stores.

Maksim Osadchy: “oil jihad” and “black swan” of coronavirus will keep pressing ruble

Maksim Osadchy, head of the analytic division, board member at BANK CFB LLC, thinks that if relationships with OPEC aren’t regulated, the ruble will feel bad.

“On “Black Monday”, 9 March, the Central Bank refused to buy currency by budget rule and began to sell the currency on 10 March. As we see now, it doesn’t stop the ruble from falling, and now (Editor’s Note: by 16.54) we see the dollar rate at 79,59. The pressure on our currency is so high that the rate would have collapsed to even 100 rubles per dollar without the Russian CB. The ruble rate clearly can be stabilised for some time by selling currency from international reserves, but in the end, this will empty the fund. Such a model was tested during the crisis in 2008-2009 and turned out unviable in the end: international reserves were spent, but the ruble anyway collapsed. The CB applied another strategy during the crisis in 2014: a sudden rise in the key rate — by up to 17% — became the main way of stabilising the ruble. This, indeed, stabilised the situation in the currency market but turned the currency crisis into economic. This time I suppose that the CB will be more careful. The next meeting of the board of directors of the regulator will be on Friday, 20 March. We should expect a tighter monetary policy of the Russian CB, perhaps, it will increase the key rate but it will likely to be much lower than in December 2014.

Strict stabilisation of the ruble with the open economy and free capital traffic is a senseless task. I am a supporter of moderate stabilisation — it is necessary to smooth fluctuations of the national currency, but it is harmful and senseless to fight to the death and spend international reserves to stabilise the ruble. Devaluation of the ruble, in itself, is painful, first of all, because of a rise in import prices it causes. But it has an upside too — for instance, we remember how quickly Russia recovered its economic growth after the default in 1998, particularly thanks to the dramatic devaluation of the ruble due to a sudden reduction in imports national manufacturers revived and became competitive. However, this model can not work now because the economy is reducing the speed because of the epidemic.

Two factors are pressing our currency. Firstly, the coronavirus is causing a big capital outflow from developing markets, particularly from Russia. Russia itself gave birth to the second factor: it is the derailed deal and the oil war with Saudi Arabia. The situation is very tense: on the one hand, money is escaping from Russia as capital outflow, on the other hand, the export revenue in currency is suddenly shrinking. The situation resembles what happened in 2014 very much, but another shock was instead of the coronavirus — anti-Russian sanctions. The situation is worse now — the coronavirus is more horrible for the economy than sanctions.

One shouldn’t think that oil exporters will feel good because of the ruble devaluation: their incomes will be falling due to a sudden reduction in oil price. We will also add here that Saudi Arabia is driving Russia out of markets, moreover, with quite abrupt methods. They are not only dumping and have suddenly augmented production but also they are reaching a specific agreement on supplies with our former clients, for instance, Chinese companies. In fact, they are staging oil jihad for us. The situation painfully resembles the middle of the 80s when oil price fell because of the oil war, while the USSR was still actively importing grains. The fall in the oil market favoured the dissolution of the Soviet Union.

We will hope that it will be possible to avoid a repetition of this scenario. Russia will maybe anyway manage to come to an oil agreement with OPEC. A head-to-head clash with Saudi Arabia seems to be suicide. It is also unpleasant that the war has two fronts — the coronavirus and Saudi Arabia. The oil war could be stopped, they could come to the table because neither Saudi Arabia is doing great, it is carrying colossal losses. But they at least have three advantages. Firstly, it is very pronounced support of the USA (the USA immediately imposed sanctions against Rosneft when the oil war began), secondly, the number of the population is significantly lower, thirdly, oil production expenses are lower.”

Marat Sabirov: “From my point of view, we can sacrifice tourism and some imports”

Marat Sabirov, director of Kazan office of Freedom Finance IC, considers that ruble will keep cheapening:

“The Russian CB is really selling the currency: it seems to me that this is done to restrain the population’s panic to avoid panicky currency purchases in banks and queues (like we saw in 2014). But I think this is done to the detriment of the country’s economy: because a cheap rate is only good for exporters. Domestic consumption has enough import substitution, enough effort has already been put to it. Now our economic system isn’t very dependent on the dollar like it was some five years ago. But from my point of view, we can sacrifice tourism and some imports.

It will turn on oil how the ruble will behave. We expect that oil might cost $20 too. There were record low 26 and 25, and we will see and probably update them, and then the ruble will inevitably cheapen. According to our cautious assumptions, the ruble rate will be staying at 80 in the short term for some time.

How to save one’s ruble savings? I always say that one shouldn’t rush to buy a currency when everything has already happened. I am for buying assets for this money, for instance, shares of companies that aren’t tied with the current situation. Plus, some companies are at an advantage now, for instance, Magnit or X5 Retail Group in whose stores food is now swept. And there is Gazprom: look how firmly it is standing and isn’t giving way. Its shares aren’t linked to oil price like oil companies’ securities. Now Gazprom is an investment that can provide 30-50% of income, according to our analytic research. This company is secured from upheavals.

So one shouldn’t invest money in either shares or real estate, which won’t bounce back quickly after the fall in the national currency. There will be a lag during which one can buy either shares (they are cheaper and easier for further sale) or real estate (more expensive). And look what’s going abroad: Boeing has gone down. Moreover, the trend for aviation development won’t disappear — we live in the 21st century. They will play it all back some time later. There are options, one should go to one’s competent broker (who deals with either market of shares or real estate) and consult with him or her.

Vladislav Kochetkov: “Not only oil is guilty of everything”

Vladislav Kochetkov, president and board chairman of Finam investment holding, considered the situation alarming but not critical:

“It is hard to judge the effectiveness of intervention of the Russian CB now by ruble dynamics because it goes on falling. I don’t think that the regulator is now injecting currency into the market in large quantities: it is rather taking targeted actions. The experience of previous crises shows that liquidity injection into the falling ruble at the height of a crisis and active sales of the national currency don’t benefit. The market should calm down a bit, and then the intervention of the Central Bank will strengthen the ruble.

The Russian market is now actively falling, non-residents are obviously leaving it. And this means that shares and bonds of Russian companies are sold for rubles, while a currency is bought for them. It goes without saying that it is pressing on the ruble a lot. The oil factor is added: oil rates have reached long-term record lows. This is why we should probably expect the Central Bank to be active after the mood in Russia and world markets stabilise. The fall isn’t eternal, for instance, yesterday the ruble recovered to its previous fall, while today the Russian market has decreased after European markets, and the ruble has reduced again. It is useless to waste reserves to try to stabilise the ruble artificially in such conditions. I think the CB understands it too.

I think neither should we wait for a sudden rise in the key rate: the regulator has switched to another policy — to inflation targeting, while there is still no sudden jump in inflation despite a sudden increase in consumption demand in recent days. If this happens, this will affect specific categories tied with currency (for instance, equipment). This is why I am personally not waiting for aggressive actions from the regulator.

We should understand that not only oil is guilty of everything. Non-residents’ money has actively entered the Russian market in the last few years, and now many of them have to cement their positions because of the pandemic. This can happen because of current risk management and corporate policy, and they have to repatriate the currency.

Oil is pressing the ruble too, of course: it is closely tied with it, including because of the necessity of a balanced budget. But there is a nuance: a long-term ruble rate matters for the budget. A week fall isn’t so important for it. That is to say, oil is important but it isn’t a determinant yet. So we will see what will happen in 2-3 weeks. Now I won’t even dare to forecast — turbulence is high, everything is changing very rapidly. The general situation is, undoubtedly, rather unfavourable for the ruble.

But we have accumulated quite serious funds — the same National Wealth Fund. This will enable to balance the country’s budget even in the worst-case scenario. This is why I don’t think that we will have to reduce the sovereign ratings of the country. Moreover, if the economy in the Eurozone and USA likely shows negative dynamics, the forecasts in Russia aren’t so bad, including made by foreign investment banks. Compared to what, for instance, happened in China and Italy, it turns out that we are demonstrating our favourite macroeconomic stability from a perspective of ratings. And this is not bad. It isn’t so scary at the moment.

Another thing is that an ordinary Russian doesn’t feel this stability but rather anxiety when standing in front of shelves with buckwheat and canned meat. As for usual Russians’ savings, I don’t think there is sense in running and buying dollars for them. As I already said, volatility is high and one can make a mistake. Capitals in rubles below a million rubles should stay in rubles and not make abrupt movements.

By Lyudmila Gubayeva