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Thursday, February 22, 2018

Fight for the weak ruble escalates

The Russian currency started the year with a significant strengthening. This is due to external factors – the growth of oil on the background of the execution of the agreements with OPEC and other oil producing countries. However, for the past few weeks is a clear attack on the ruble is in Russia. What is the reason and who may be interested in a weak ruble?

The Russian currency is traditionally influenced by oil prices, which are still very favorable. But for the past three weeks the situation interfere, the Ministry of Finance and the Central Bank vbrasyvaya in the media verbal intervention that the strong ruble is not profitable for the budget and need a devaluation.

“Someone decided to play on the devaluation of the ruble, and that someone – obviously not uncle Peter and aunt Claudia from next door. These “figures” larger than the bought currency, and she doesn’t want to grow”

First, 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. Rumors about this, and then the confirmation came also from the Central Bank. Then the Ministry of Finance announced the beginning of operations on purchase and sale of foreign currency on the domestic market since February. The budgeted price of oil Urals in $ 40. All additional oil and gas revenues because of higher oil prices will be saved in reserves. The volume of operations on currency purchase will correspond to the volume produced additional oil and gas revenues. If the price of oil will decline below $ 40, then there will be a sale of foreign currency in the amount of lost oil and gas revenues. All this within the budget rules.

On Tuesday the newspaper “Kommersant” with reference to some calculations of the Ministry of Finance wrote that the Agency proposes to do to devalue the ruble by 10%. According to the Ministry, at the current cost of raw materials in $ 55 per barrel without the use of fiscal rules the budget deficit will be 1.5% of GDP, and the Reserve Fund must be spent 464 billion. But if the budget rule will apply (purchase of reserves in additional oil and gas revenues), then the budget deficit will be less than 0.7% of the GDP, and the Reserve Fund will be replenished to 241 billion rubles. In this case, however, the ruble should weaken by 10% and make 64,9 rubles per dollar. The Ministry considers that without the devaluation of the ruble and the application of the budget rules, the Federal budget will be balanced only when the price of oil at $ 76 per barrel. And this price is unlikely this year.

However, the text is not entirely clear whose it is calculations in the office, and they raise some doubts among experts. “According to our calculations, additional revenues for the Treasury from exceeding the actual cost of oil to budgeted levels correspond to purchases of about 1-1,2 billion dollars a month, or about 13 billion dollars a year. The cost of such interventions is on the order of plus two of the ruble to the equilibrium exchange rate ceteris paribus for the year but not the five rubles laid by the Ministry of Finance from current levels”, – count, Director of the center for macroeconomic forecasting of the Bank Natalia Shilova.

It should be noted that in the Russian budget we are talking about the price of crude oil Urals. To obtain the average annual Urals crude at 55 dollars, you need to see Brent at 58 dollars per barrel in average for the year, experts say. “But to see such a large-scale weakening of the ruble by 10% in view of rising oil, you will need to buy more substantial amounts of currency, namely, two to three times higher than our estimates that the economist considers it unlikely.

Therefore, Natalia Shilova suggests that “the rate at 64.9 rubles per dollar Urals oil at $ 55 is only the scenario “working” conditions, which are traditionally used when estimating future revenue at the level of “what if”, not the official “targets” of the currency”.

In General, the assessment of what the consequences of the decision of the Bank of Russia and Ministry of Finance to begin the accumulation of currency in the budgetary rules to implement balancing budget, market participants were divided into two camps. Some believe that the consequences will be neutral, in particular for the ruble. Then you can expect an interest rate cut by the Central Bank in March this year by 25-50 basis points, and at the end of 2017, the rate may be reduced from the current 10% to 8.5%, according to analysts “VTB the Capital”. This will certainly reduce the cost of credit money in Russia. Others, on the contrary, I believe that the consequences will be significant, that is worth waiting for the devaluation of the ruble and not to count on lower rates.

“Someone decided to play on the devaluation of the ruble”

Why in recent weeks in Russia is growing the attitude to the devaluation of the ruble? Deputy General Director for investment analysis of IR “ZERICH capital Management” Andrey Vernikov makes the assumption that not only the budget benefit from a weak ruble, and Russian elites. Because the elite keeps the money in foreign currency, and the ruble suddenly strengthened. In support of its theory, the expert gives the balances on accounts of natural persons. If at the end of 2016 remains short (30 days) was at 12.7 billion dollars, at the end of December they amounted to 14.3 billion dollars.

“Someone decided to play on the devaluation of the ruble. These figures bought currency, and she doesn’t want to grow, so the news is now out: “In the event of cancellation of anti-Russian sanctions, the ruble will grow by 5-10 percent.” Of course, positive on the ruble it is urgent to neutralize the negative verbal interventions about the operation of the Ministry of Finance of Russia for the purchase of foreign currency in the market,” expresses his personal opinion on the ruble Andrey Vernikov (this is not the position of the company).

To some extent, in favor of the version Vernikova heard today the words of the head of VTB24 Mikhail Zadornov. Answering the question of the currency in which the population is worth saving, he said that “the rich Russians keep their money in currency.” According to him, rich people don’t believe in the strengthening of the ruble, despite the last year’s figures. “It would seem that this is contrary to common sense. After a year of strengthening of the ruble by 17% and the difference in rates… And mass client almost 80% of the transferred money in rubles,” – said Zadornov. By the way, in his opinion, “mass behavior is quite rational,” in other words, he is for keeping savings in rubles.

Apparently, the news Agency Bloomberg that the ruble in case of cancellation of sanctions will strengthen – just after the “Kommersant” was released with exactly the opposite Outlook from the Ministry of Finance looks in the same context and is reminiscent of verbal intervention.

In any case, on the lifting of sanctions as a factor of influence on the ruble to speak while early. “High hopes for the easing of sanctions against Russia unjustified, although they are still working towards the strengthening of the ruble. But objectively the earliest date on which the cancellation or partial lifting of sanctions is 2018, so this driver of growth is not long-term,” – says Andrey Vernikov. But if the sanctions will be canceled after all in 2017, it is, of course, will strengthen the ruble by approximately 6% against the dollar, he said.


Against the ruble this year can play the fed. Wednesday will be a regular meeting of the American regulator, which is not expected to change rates. However, the regulator has promised to raise this year’s bet three times already.

“The fed in this (year) will tighten monetary policy. This will lead to a stronger dollar, which lowers commodity prices, – said Vernikov. – In addition, many developing countries have large dollar debts, and it will be difficult to serve them. In the second half of the year, probably the cooling of investors to emerging markets that will lead to a reduction in the number of incoming currency.” All this will put pressure on the ruble.

Finally, we cannot exclude the drawdown in oil prices. While the market believed in the firmness of decision of OPEC and non-OPEC to cut oil production, helped by data on production cuts in January. This, of course, helps the pair to now stay above $ 55 per barrel and to support the Russian currency.

But to break this trend can shale oil, which have several factors for its rapid development. First, the new US President who is willing to help American oil producers. Secondly, the current level of oil prices. $ 50 per barrel on average the level at which the drilling of new wells in shale deposits becomes profitable.

While it is not much collapsing oil prices, however, obviously does not allow Brent to rise above 55-56 per barrel. The increase in drilling activity in the United States and, accordingly, production partially neutralizes the effect of the agreement OPEC and non-OPEC.

Given all the negative for the ruble factors Vernikov makes quarterly forecast rate. In the first quarter of the course will be the average of 61, in the second quarter to 63, the third 64, fourth quarter – 66 rubles per dollar. Thus, the ruble is waiting for a slow and orderly devaluation that will delight not only the Ministry of Finance and the Central Bank, but the Russian elite that keeps their money in U.S. currency.


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