‘There is a high probability that the ruble will collapse again’

Analyst of GC Finam — about the reasons for the strengthening of the ruble and the danger of a weakening of the dollar for the Russian economy

The ruble has become the best global currency since the beginning of the year, according to Bloomberg, as it has grown against the dollar by 11% — this has been facilitated by Russia's capital control measures. However, some experts are not sure about the reliability of the strengthening of the Russian currency and that its exchange value corresponds to the real one. Andrey Maslov, an analyst at Finam Group, is also quite skeptical about the agency's assessment. What factors contribute to the strengthening of the ruble, how long it will last, and how it affects the country's economy — the financier explains in the author's column for Realnoe Vremya. Maslov warns that the exchange rate of the Russian currency is not protected from new collapses, and a too cheap dollar can create problems.

“The ruble is not a fully convertible currency today”

If we look at the figures, we will see that since the beginning of the year the ruble has really strengthened quite decently. Even if we do not take the March peak of 120 rubles per dollar, but turn to the beginning of the year, when the exchange rate was about 76 rubles — this is about an 11% growth. Bloomberg also notes that this happened due to increased control over the outflow of funds from Russia and the restrictions of the Central Bank. This means that the ruble is not a fully convertible currency today. When non-residents are allowed to trade, and sooner or later many restrictions will be lifted, there is a fairly high probability that the ruble will collapse again.

The current high ruble exchange rate has several support factors. One of them is a distorted trade balance, since imports in the country have fallen several times, and exports, although have decreased, but not so significantly. Thus, the ruble becomes just more expensive, since we do not use foreign currency. There is more of it in the country both because of restrictive measures and because of trade balance. If a partial embargo is imposed on oil and other energy resources from Russia, most likely, the trade balance will gradually stabilise, which will lead to a weakening of the ruble.

The impact of the decision to sell gas for rubles is strong, but the wording here is not entirely correct. At the beginning of the crisis, a measure was introduced according to which exporters were obliged to convert 80% of the revenue in rubles. The same decision was made in the 1990s. Then it was announced the transition to rubles in settlements with unfriendly countries. In fact, nothing has changed, because unfriendly countries also pay in euros, just to an account with Gazprombank, which already in Russia converts this money into rubles. Some of them remain in euros, some in rubles. Technically, this is still the convertion of export companies' revenue into rubles. In any case, this supported the ruble, which is visible even on the chart.

There is a fairly strong strengthening of the ruble in mid-March, which is the effect of the statement on the transition to ruble settlements. It brought the ruble to the rate of 75-80. Further strengthening is more related to the distorted trade balance. Countries have been actively speaking out during the month: whether they would pay or not. But now the news has appeared that Germany has paid for Russian gas in euros to Gazprombank's account so that they can convert it into rubles. This news should also contribute to the strengthening of the ruble, but it seems to me that the fluctuation will not be serious.

A strong ruble blows the budget

It is worth noting that our budget was calculated based on a rate close to 75 rubles per dollar. Russia receives income from the export of energy resources, therefore, to use the budget reasonably and adequately, it is necessary to adhere to the course laid down in it. Otherwise, there is a risk of a budget deficit.

The dollar below 65 rubles and the euro below 70, as now, put pressure on the Russian budget. Few benefit from this, so the Central Bank has already cut the interest rate twice — from 20% to 17% and from 17% to 14%. At the same time, the Bank of Russia cannot cancel most of the measures at once. They will try to find a balance to return the ruble to the exchange rate from 75 to 80, so that the budget is in surplus, but not to collapse it.

It is difficult to say exactly how the regulator will act. Technically, the ruble looks very good, but the prospects are still unclear and hazy. The scale of the collapse is also unclear and depends both on the actions of the Central Bank and on how the situation in Ukraine will unfold.

One can try to predict something for a maximum of 2 weeks, but it is impossible to predict even for six months ahead. The situation is influenced by non-economic factors. Political events and decisions can change everything. The economic situation is clearly not dominant now.

“Prices are not falling because there are no imported goods and services”

The dependence of prices on the exchange rate in the domestic market was with a fully open economy. Most of the Russian economy, one way or another, is dependent on the rest of the world. And this is not a problem, all countries are dependent on each other to some extent. No state can afford full autonomy, the complexity of technical and logistical processes does not allow it to be done in the modern world.

Prices are not falling because there are no imported goods and services. Including components, packaging, paper and so on. This leads to an increase in prices for domestic goods. Even if you take meat produced in Tver Oblast, in order to sell it, you need to pack the product in a film brought from Poland and paper brought from Finland. That's why prices are rising, even if Russian meat itself becomes cheaper.

The preservation of the geopolitical situation, in which the country currently is, is detrimental to the economy. The longer we are in the current situation, the more sanctions against Russia will be imposed. Although the sanctions potential has almost been exhausted. There is a complete SWIFT lockdown and a complete embargo left, which seems unlikely.

We will get the maximum effect from the sanctions already imposed in a few months, when the existing stocks of Western products begin to deplete, and the logistics chains will not recover. Therefore, I would probably assume that the Central Bank will try to keep the ruble exchange rate in the area of a wide corridor of 62-70. It is unknown how much the restriction of imports at the peak point of sanctions will affect the exchange rate. The weight of this factor is not very clear, there is nothing to compare it with yet. The situation was a little different in the 1990s.

There is also economic instability in different countries, but for different reasons. For example, in Turkey, the reason is that President Erdogan dissolved the Central Bank and banned interest rates. He switched to so-called Islamic banking. Without sane interest rates, the banking system will not be able to operate adequately. The blame for inflation in Turkey lies with Erdogan's decision. It will be almost impossible to get out of this situation unless we return to understandable central banking, inflation targeting, and market mechanisms for determining interest rates. The policy of maintaining low interest rates with high inflation only exacerbates it. This is a wheel that will continue to spin round.

Andrey Maslov

The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.