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Saturday, April 14, 2018

The Russian authorities began to gently weaken the ruble

The Russian government, two days before the inauguration of U.S. President makes a statement that immediately allowed the dollar to strengthen against the ruble. Igor Shuvalov promised in Davos, return of the Bank of Russia on the market for the currency which the controller has never been done in a year and a half. The Central Bank confirmed it. How much the Central Bank can collapse the ruble?

At current oil prices, and in connection with the government’s decision not to send additional revenues from higher raw material prices for additional costs we can confidently talk about the possibility of the currency purchase by the Bank of Russia, said first Deputy Prime Minister Igor Shuvalov in interview to Agency Bloomberg. Buying foreign currency in the controller can lead to the weakening of the ruble.

The Russian budget from such interventions can win, as the budget for 2017 laid in the course of 67.5 rubles per dollar”

Verbal intervention Shuvalov has affected the ruble. Immediately after his words, the Russian currency started to weaken. Dollar for lunch has increased to 60 percent for 11 January, while the Euro was closer to the mark in 64 rubles, the highest since January 3. And it happened amid the ongoing growth of the world prices for oil. Usually, though, the ruble behaves parallel to oil quotations.

However, the Central Bank hastened to assure that no plans currency intervention to manage the exchange rate. However, this does not mean that the Bank of Russia will start to buy currency. Just aim the controller will be different.

In a press-service of the Central Bank of Russia noted that I think it possible foreign exchange market, but not to support the ruble, and in the framework of the budget rules. “The Bank of Russia considers attempts to control the nominal rate of the ruble is inefficient and will not in any way to depart from the regime of a floating exchange rate,” reported RNS in the press service of the Central Bank of Russia.

A stabilizing effect on the real exchange rate may have a fiscal rule, reminds the regulator. Therefore, the Central Bank welcomed the decision not to spend additional oil and gas incomes of the budget this year. “The monthly volume of purchases of foreign currency in the framework of the implementation of the transitional provisions of the budget rules do not exceed the amount of the monthly additional oil and gas revenues from the excess of actual oil prices levels included in the budget”, – explained in the Bank. In other words, the Russian regulator will buy as much currency as it appears in the budget from additional oil and gas revenues.

Yesterday evening, Finance Minister Anton Siluanov said that the government agreed, and the President supported that this year additional oil and gas revenues when the price of oil above $ 40 per barrel will not be used to increase expenditures. They will go to reduce the expenditure of the Reserve Fund and national welfare Fund. The Ministry of Finance estimates, at 50 dollars per barrel, the budget will receive about 1 trillion rubles of additional revenue, at 55 dollars a barrel this would amount to 1.4 trillion rubles, said Siluanov. Now Brent is 54.5 dollars per barrel.

From the Reserve Fund and national welfare Fund in 2017 to Finance the budget deficit was planned to allocate 1.8 trillion rubles. However, additional oil and gas revenues offset part of the spent reserves. In the end, instead of 1.8 trillion roubles from the reserves will be taken either 400 or 800 billion rubles, depending on the annual average oil prices by year-end 2017. I should say that if the price of oil will be 60 dollars in 2017 may not be necessary to spend reserves.

However, in taking this decision, the government cares not only about maintaining a “safety cushion” in the form of reserve funds, but also on the exchange rate. The fact that the direction of all additional revenues from oil and gas in the new budget spending would lead to the strengthening of the ruble. And it would have been uncomfortable for the Russian economy.

The industry has adapted to the current exchange rate at around 60 rubles per dollar, so desirable to the currency further strengthened, said in late December, Russian Finance Minister Anton Siluanov. Following the game “do not give a ruble much stronger” will play the Central Bank of the Russian Federation.

What will happen to the ruble?

Central Bank already half a year as does not use foreign exchange intervention – stopped buying foreign currency in the market in the summer of 2015. Then the regulator started to buy the currency at exactly the moment, when the ruble reached a local maximum, and the dollar has fallen below 50 rubles, reminds the head of Department of financial analysis “KIT Finance Broker” Vasily Koposov.

This was done with the purpose of replenishment of gold reserves at acceptable prices and to keep the rouble from excessive strengthening, which hurts export-oriented Russian economy. Last time the result of currency interventions by the summer of 2015 the Central Bank managed to increase the amount of foreign currency in gold reserves by 3.2% (about 10 billion dollars) as the ruble to the dollar fell by almost 40%. “That time was set a trend that eventually led to the fact that in January 2016 the Russian currency hit new historical lows against the us” – said Koposov.

But now the situation is very different because oil prices are rising, not falling, plus the budget of the Russian Federation set the price below ($40) than the current ($54). Therefore, if the Central Bank will come out with currency interventions on the market now that the currency rate is of course affected, but the impact force will be much less than a year and a half ago, I’m sure Koposov.

“The question is what level for the Central Bank will “red flag”. 60 rubles per dollar at the current price of oil? It is doubtful, because the budget’s getting a windfall at the expense of a 20% excess of the actual price of a barrel of oil in rubles over the pledged price under the plan”, – said Vasily Koposov.

The Central Bank may re-enter the market to buy foreign currency to replenish international reserves if the exchange rate reaches 57-58 rubles per dollar, does not exclude Konstantin Bushuev of the company “Opening Broker”. “The Russian budget from such interventions can win, as the budget for 2017 laid in the course of 67.5 rubles per dollar,” says Bushuev.

Talk about a comfortable level of exchange rate for exporters is difficult because each company has its own conditions. But on average, their preferred rate of above 60 rubles, he said.

“From the point of view of the balance of payments the current values of course right now not so terrible – the current Jan has many years of minimum payments on the Russian external debts. Meanwhile, in March is expected to be the next peak of payments which is likely to be more difficult to refinance than last December, which could increase the demand for currency,” says Bushuev.

Chief economist at FG BCS Vladimir Tikhomirov agreed that the words about the possibility of buying currency regulator should not be regarded as an indication of the willingness of the Central Bank to manipulate the exchange rate. In his opinion, shopping is probably going to carry out CBA on behalf of the Ministry of Finance, when he starts to redirect the excess earnings in a Reserve Fund. Secondly, believes Tikhomirov, the volume of interventions will be small – around 100-200 million dollars a day in 2015, and it will not have a significant impact on the dynamics of the ruble.

The fact that verbal intervention Shuvalov and Central Bank to end “excessive” strengthening of the ruble, appeared two days before the inauguration of the new President of the United States, suggests that the Russian authorities expect a positive dynamics in relations with the West in the near future. This can increase the investment inflows to the Russian market and cause a further strengthening of the ruble, said Tikhomirov.

The head of VTB Andrey Kostin does not see a big threat for the collapse of the ruble. According to him, you need to “really try”. According to him, the ruble is now stable and could potentially even be strengthened by about 10%.

Verbal intervention Shuvalov, by the way, didn’t last long, and the ruble to the dollar on the background of rising oil prices on Thursday began to grow again.

However, there are factors that bear risks for the Russian currency. The chief economist of alpha Bank Natalia Orlova notices that the strengthening of the ruble now is based on too optimistic expectations of continuing growth in oil prices and the lifting of sanctions. “These expectations distract attention from the fundamental problems of the ruble, that is, the growth of imports and scarcity of dollar liquidity. We expect these factors will keep the ruble within the range of 60-65 rubles per dollar in 2017, i.e. at a level which reflects its fair value” – considers Orlova.


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