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Saturday, December 3, 2016

Who will bring down the ruble


Oil is falling rapidly in comparison with the prices beginning of June it has fallen in price almost on 20%. The rouble for most of this period held surprisingly firmly — its exchange rate against the dollar remained virtually unchanged. However, at the end of July the Russian currency still began to fall, although not as rapidly as oil. “MK” has decided to find out from the experts what to expect from oil prices and the ruble in August-September and which in the current environment citizens to keep their savings.


photo: Gennady Cherkasov

The oil pumped up

Almost the entire first half of this year the price of oil rose. Starting in late January at just above $ 27 per barrel by the end of the first decade of June, Brent crude reached almost $ 53, it has risen by half. In the long tradition of the growth of oil prices was accompanied by strengthening of the Russian currency. If at the end of January, at the peak of the downturn in the energy market, the dollar was about 80 rubles, in early June — less than 64 rubles.

However then the situation on the oil market has changed. The price of Brent moved to the end of June to around $ 50 per barrel, and then steadily moved down, down to the end of July to about $ 43. When interviewed by “MK” analysts believe that this fairly stable trend and decline in prices may continue for a long time.

“Statistics show that the number of drilling rigs in the United States began to grow again, since the price of oil in 50 dollars for barrel production for part of the shale companies is attractive. This could reverse the trend in the reduction of oil production in the US — says the head of the Department of financial research and economic analysis of KB “Alba Alliance” Olga Belenkaya. — At its peak and stocks of petroleum products in the United States and China, raising fears of further reductions in oil demand in anticipation of the imminent completion of the driving season in the United States.”

“The spring-summer recovery in prices brought the oil to the level on which production began to rise again, with a time lag of several months should have a positive impact on the production volumes of hydrocarbon raw materials, — agrees with his colleague chief analyst of Management “Savings” Alexander Potavin. — At the end of July gasoline stocks in the United States was more than 12% above the five-year average. It is a signal that demand for oil will fall quite low. Traditionally September is a month of oil price reduction, and in August, they also often went down.

“The trend of the decline in oil prices that started in July, quite stable. EIA (us Department of energy) expects the second half of 2016 the average price of oil at around $48 per barrel. Because it receives data directly from producers of shale oil, it gives very accurate predictions in the last two years. In General I agree with these estimates,” said analyst CC “FINAM” Timur Nigmatullin.

At the same time, to mention, to what levels can drop oil prices, experts note that in addition to the fundamental factors of supply exceeding demand a great influence on the dynamics of the market will provide and the actions of speculators.

“Now oil is once again rushed for 40 dollars and possibly lower — analyst IK “Forum” Fedor Aristocrats. — From a purely technical point of view we can speak about a certain level of support near $ 42 per barrel from him the price of “black gold” “bounced off” a year earlier, after which rather quickly broke the mark of 50 dollars. If, however, speculators will be able to confidently penetrate 40 dollar level, we may expect the panic of the fall up to the level of 30 dollars per barrel, which was already observed in January of this year.”

“As preceding the rise and the fall in oil prices amplified by financial speculation. Therefore, it is possible that oil prices will continue to decline and will come to 40 dollars per barrel, and perhaps up to 30-35 dollars a barrel,” predicts Olga Belenkaya.


photo: Gennady Cherkasov

Presidential course

We have long been accustomed to the fact that the drop in oil prices accompanied by a drop in the ruble exchange rate. Therefore, the behavior of the Russian currency since the beginning of summer until mid-July looked pretty strange: the ruble not only did not fall, but have instead strengthened slightly against the dollar.

Analysts even talked about the fact that the ruble is “rid” of oil, and proposed a number of explanations for this. “From the beginning of June, the ruble is almost completely “detached” from the dynamics of oil quotations,— says Timur Nigmatullin. — If at the beginning of the year, the correlation between them was about 90%, in the first half of summer is near-zero. In fact, for this reason, we do not observe a precipitous weakening of the Russian currency against the U.S. dollar, despite falling oil prices. Now the dollar is worth less than 67 rubles, and have more than 70 RUB. the Reason is the simultaneous influence of several factors. First and foremost I note the dramatically slowed consumer inflation. In the first seven months of the current year accumulated total inflation 4% vs. 9.4% in the same period last year. Meanwhile, as practice shows in other developing countries, who defeated high inflation expectations, with more or less persistently low inflation of the population and businesses are not in a hurry all the cash to convert into the currency at the first opportunity. In addition, the outflow of capital from Russia in January-June 2016 fell by almost five times yoy”.

“In General, the correlation between ruble and oil prices remains high, however, as in the past, and this year some periods of time it is violated, the ruble would be “untied” from oil, — says Olga Belenkaya. — In the first half of 2016, the sharp drop in foreign exchange inflows in the country (according to the Central Bank, there was a reduced surplus in the current account to 15.9 billion dollars, compared with 46.5 billion a year earlier) was offset by the significant, with 45.6 billion to 10.5 billion, a reduction of the outflow of capital because of the lower volume of foreign debt payments. That is, the impact of lower energy prices on the ruble exchange rate was smoothed. In July, the reaction of the ruble to the decline in oil was obviously late, which may be associated with a dividend period: companies converted export revenue into rubles to pay dividends to shareholders.

However, abnormally strong ruble did not stay long. The reason for the decline in its value was the statement of Vladimir Putin at the meeting with Dmitry Medvedev on July 19. The Russian President asked the Prime Minister to think about what to do in connection with the strengthening of the ruble. “We are closely watching what is happening in the economy, and we know that now there is a definite strengthening of the national currency. The ruble strengthened, despite the price volatility in commodity markets, and in this regard we need to think about how and what we will do in the near future in connection with these factors,” he said. It is obvious that the strong ruble amid falling oil prices, creating problems for the government, because the budget revenues in ruble terms decreased. And since the budget in Russia, to put it mildly, not all right, the market took the President’s words as a signal that the authorities continue to seek the weakening of the national currency. It is not surprising that after Putin’s statement for the remaining until the end of July while the dollar has risen from 63 to 66 rubles.

And this is only the beginning, the weakening of the ruble can be much more significant, experts say. “Now the ruble has moved to lower after oil. In August of dividends companies can have the opposite effect on the ruble, as some shareholders will convert them to currency, causing the ruble may fall even more. In addition, August is the traditional vacation season, which also increases demand for the currency; however, now the scale of foreign tourism has declined sharply. And in September, companies and banks have local peak of payments on external debt — more than $ 10 billion. So if the oil price starts to grow, I expect a further weakening of the ruble in August-September — perhaps to a level of around 70 rubles per dollar”, — says Olga Belenkaya.

“After Vladimir Putin has suggested the government to think about the usefulness of further strengthening of the ruble, it has ceased to grow, — says Alexander Potavin. For the last eight days of July, the dollar rose against the ruble by more than 6%. Thus, according to the schedule of seasonality, in the last 10 years in August, the exchange rate is always decreasing. And then we have mid-September, when Russia will hold parliamentary elections. On this background the Russian stock assets and purchases of foreign currency may increase. Therefore it is not excluded that in August-September we will see the dollar above current levels — where-that around 68 to 70 rubles per dollar”.

“According to my calculations, in the second half of the average annual dollar rate will be around 65-66 rubles. By the end of the year amid seasonal demand for imported goods, “American” can be worth more than 70 rubles,” — says Timur Nigmatullin.

To save and preserve

It is clear that the changing nature of behaviour of the Russian currency poses many citizens question how in the current environment to keep their savings from depreciation, and probably to earn on exchange rate fluctuations. There is no single formula — a lot depends on what purpose you are saving, and how long the person can afford to invest.

“Because a floating exchange rate — is a long time, then you need to get used to living in a new reality, in advance of converting rubles into foreign currency for holidays and foreign currency investments (e.g., foreign real estate or securities). Now just a very good time to think about converting ruble savings into foreign currency, — says Timur Nigmatullin. — However, those who wish to convert the currency into rubles — for example, to buy a property in Russia or shares of Russian companies is to wait a few months: this will earn due to exchange rate differences. To save money I recommend in a diversified portfolio of assets, generating cash flow in foreign currency or ruble deposits, stocks, bonds, real estate.

“It should be noted that ruble investments continue to remain the most secure investment, especially with the decline in interest rates on ruble deposits and exchange rate fluctuations of the ruble, — says Fedor Aristocrats. — However, you can encourage the Russians to place the bulk of savings in Deposit accounts in three currencies — rubles, dollars and euros. Remaining “investment” part in the current situation, you can invest in shares of Russian companies showing good growth recently, and in gold, which seems to be extremely attractive asset in the context of high uncertainty on financial markets.”

Olga Belenkaya also advised to keep savings in different currencies. “Ideally, savings are best to diversify in several major currencies, traditionally, the ruble–dollar–Euro,” she says. — However, it makes sense to do if you have the ability to create savings in the long term, otherwise — for example, if it is expected that savings will have to spend in a few months you can lose in the event of unforeseen exchange rate fluctuations. With regard to profitability of savings rates of banks on deposits declined markedly — foreign currency deposits a good yield is now 2-3%, in roubles the average value of the maximum bet top 10 banks that attract deposits from the population of 8.85%, which is only slightly above the official annual inflation rate. That is, Bank deposits are now — it is rather a way to save money than to earn income. There are instruments with higher returns — for example, ruble and currency bonds, dividend stocks — however, it is rather the tools of investment, not savings, and they are associated with a higher level of risk.”

Alexander Potavin solidarity with colleagues: “In the current situation of the Russian man in the street do not forget the old principle of keeping your savings in different currencies: when the yield on ruble deposits are low, “shoots” currency, which raises the total return on the basket of savings”.

Rising prices and a falling ruble. Chronicle of events
source

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