On April 3, the ruble weakened to near yearly lows. The dollar exchange rate reached 78.6 rubles, the euro – 85.5 rubles. The last time the rate was like this was on April 20, 2022. The Eastern Herald asked analysts what will happen to the national currency.
The main factor behind the ruble’s depreciation in recent months has been Russia’s declining oil and gas revenues due to Western sanctions and low oil prices on the world market, Mikhail Vasiliev told The Eastern Herald, chief analyst at Sovcombank.
The current trade surplus has narrowed significantly from last year, when it topped $30 billion a month at its peak, and is now expected to be below $5 billion a month, points out Sofya Donets, economist for Russia and the CIS at Renaissance Capital. Investment firm: “According to our estimate, the current account surplus in April will be the lowest in the coming months.”
“The current exchange rate is not too weak. This is a normal appreciation, taking into account all the factors, and it could be even lower,” summarizes Timur Nigmatullin, investment consultant at FG Finam.
The main reasons for the weakening of the ruble:
Decline in foreign exchange inflows from exports
Due to the EU embargo on crude oil from Russia since December 5, petroleum products since February 5 and the “ceiling” of oil prices, “international trade in petroleum and petroleum products Russians has become less transparent, part of the margin has shifted”. from the producer to the intermediaries and less foreign currency began to flow into the country, ”explained Mikhail Vasiliev.
At the same time, the demand for money increases
Including for the purchase of imports as new supply chains from the East are set up. “Imports are restored – the mechanism of parallel imports is working effectively. The growing budgetary expenditure goes, among other things, to purchases abroad, ”underlines Timur Nigmatullin.
“In addition, the population’s demand for foreign currency is gradually increasing for trips abroad for May holidays and summer holidays,” Mikhail Vasiliev added.
Anatoly Maltsev / EPA / TASS
Ruble exchange rate forecast
The ruble is likely to strengthen slightly, if there are no really significant external changes, believes Sofya Donets. Renaissance Capital expects the rate to strengthen to 75 RUR/$ by the end of the year.
Sovcombank is more pessimistic. He predicts by the end of the year the ruble will weaken against the dollar to 82, against the euro – up to 87, against the yuan – up to 11.9. For the second quarter, Sovcombank predicts the exchange rate of the ruble against the dollar – 73-81, against the euro – 79-80, yuan – 10.8-11.8.
On average, for 2023, the ruble exchange rate will be 78 against the dollar, 83 against the euro and 11.3 against the yuan, forecasts Sovcombank.
The ruble will be supported by:
Maintaining a large current account surplus of Russia’s balance of payments
“Exports will exceed imports, the influx of foreign currency into the country remains impressive”, expects Mikhail Vasilyev.
Severe restrictions on the movement of capital and absence of non-residents on the Russian market.
This will limit fluctuations in the ruble exchange rate, the economist explained.
The continuing risks of Western sanctions on the Moscow Stock Exchange and the National Clearing Center (NCC), as well as the dedollarization policy pursued by the Central Bank, will contribute to the drop in demand for the currency.
“Some support for the ruble could come from the planned increase in the key rate from the current 7.5% to 9% by the end of the year to curb inflation,” added Mikhail Vasilyev.
Marina Mamontova / Kommersant
Why has the ruble weakened despite rising oil prices?
The price of Brent oil rose $80 to $84.9 a barrel following OPEC+’s decision to cut production after Russia.
In response to the sanctions, Russia voluntarily reduced its oil production by 500,000 barrels per day from March 1 until the end of the year (this represents 5% of Russian production or 0.5% of supply world).
OPEC+ countries will cut production after Russia. On April 2, they unexpectedly announced a 1.15 million bpd cut in oil production from May to the end of 2023.
Previously, the link between oil and the ruble was largely maintained by capital account transactions. But the volume of these transactions has decreased due to the tightening of sanctions, the withdrawal of foreign companies and investors from Russia and the imposition of severe restrictions on capital movements by the Bank of Russia.
Since spring 2022, the ruble exchange rate largely determines the current account of the balance of payments (mainly the difference between exports and imports). Foreign exchange interventions—the purchase or sale of foreign currency by the Bank of Russia—as part of the fiscal rule, reduce the dependence of ruble fluctuations on oil prices.
Renaissance Capital does not expect the decision of the OPEC + countries to significantly increase oil prices. “This is more likely to become a price stabilizing factor – a return to February values,” Sofya Donets points out. “There is an opportunity for Russian oil to reach prices close to the $60 a barrel price cap by the middle of the year, but we are unlikely to be able to ‘jump’ above it.”
“Until we see not only an increase in oil prices, but an increase in the price of Russian oil of the Urals brand, it will not affect the ruble,” stresses Sofya Donets.
