Andrey Maslov: ‘It's not economic interests that reign supreme, but political ambitions’

09:00, 18.07.2022

Analyst of FG Finam — about forecasts for the ruble and the currency in which it is best to keep savings

For the first time in 20 years, the euro has reached parity with the dollar, and the Russian ruble is falling, then rising again. What will happen to the exchange rates by the end of the year, why the national currency is strengthening, and in which currency it is better to keep savings, Andrey Maslov, an analyst at Finam, writes in the author's column for Realnoe Vremya.

What is happening to the ruble

The ruble is strengthening again after several sessions of weakening a week earlier, which makes investors and ordinary Russians increasingly wonder why the Russian currency is behaving this way and not otherwise. The accuracy of forecasts in the current situation is quite low, since political ambitions and decisions reign supreme, not economic interests. Unfortunately, they are difficult to analyse and subject to any comparison.

In the week ending July 10, the Russian currency fell by 11,8% against the dollar. This was largely due to the establishment of “parallel imports”. For example, the head of the Ministry of Economic Development, M. Reshetnikov, said that more than 230 thousand tonnes of goods worth $1,8 billion were imported to Russia in the three weeks of May under the “parallel import” scheme. However, in general, there are no statistics on gray imports and it is not possible to check the data.

In general, we can also add here an increase by the Central Bank of the Russian Federation in the threshold for transfers abroad from $150 thousand to $1 million, and the introduction of fees for the maintenance of foreign currency accounts. All this helps to “flush out” excess currency from Russia, which in general turned out to be almost useless, since it is not possible to buy goods and services for euros and dollars in the West, while the currency itself continues to flow due to sales of resources to Asia, through gray schemes or with a large discount.

About introduction of new budget rule

It should also be noted that after a sharp reversal of the exchange rate, the level of speculative activity has increased significantly, speculators had to buy back previously sold currency and even open new positions in the currency in order to make quick money on the local weakening of the ruble. The population, seeing such a situation with the exchange rate, also joined the purchase of dollars and euros. Separately, it is worth highlighting the refusal of a number of large Russian companies to pay dividends for the very successful 2021 year, which led to the disappointment of investors and supported speculative sentiments.

Perhaps, when we talk about the ruble, it is worth mentioning the energy component: earlier, Brent crude oil fell below $100 per barrel, which put pressure on the Russian currency. However, it should be understood here that Urals is traded at a large discount relative to Brent ($15-25 per barrel), and a discount of 25-40% is also imposed on the final amount in supply agreements due to the “toxicity” of Russian assets. Also, according to Bloomberg, the United States and its allies are discussing the possibility of introducing a ceiling for the cost of Russian oil in the range of $40-60 per barrel, which will negatively affect the Russian currency, while OPEC + believes that it will be extremely problematic to compensate for losses from falling oil production in Russia, and there are still no full-fledged alternatives to Russian supplies for the EU economy.

Another factor in the exchange rate of the Russian currency was the statement of the head of Ministry of Finance of Russia Siluanov on the development and implementation of the new budget rule. The main difference from the current rule was the proposal of the minister of finance to take for the calculation of the budget rule “the average value that will be in a non-risky zone for the budget”, not the amount of non-oil and gas and oil and gas revenues at the base price of black gold. Besides, Siluanov proposed to include “quasi-expenditures, which are now carried out below the line in the form of loans, so that there would be no temptation to increase quasi-budgetary operations, which are actually net expenses.” But here it is worth understanding that even with the successful encouragement of such changes, their implementation may take at least 2-3 years.

There is no question of the dollar losing ground

As for keeping savings, the dollar remains the obvious option in the next six months, as the Fed continues its policy of tightening the monetary policy, and instability and the spread of coronavirus in Asia supports the dollar as a protective currency. There is no question of the dollar losing ground, since 88% of all transactions on currency ranks occur using the dollar. At the same time, the dollar remains the main reserve currency, since 60% of all world reserves are kept in dollars.

Yes, since 2000, the dollar's share has fallen from 70% to 60%, but the American currency still absolutely dominates the global economy. The Chinese yuan, which accounts for less than 1% in transactions and less than 5% in reserves, is still far from the status of a global currency. This is largely due to the policy of China, which does not allow investors to access domestic markets (especially the real estate market).

As for forecasts, towards the end of the month we expect the ruble to strengthen, mainly due to the payment of taxes by exporters, but in general, in the near future the exchange rate may be in the expanded corridor of 55-65 rubles per dollar.

Andrey Maslov