Analysts assessed the consequences of a sharp rise in the dollar and the euro for Russia

Literally in a week, Russia found itself in a new currency reality. The dollar and euro rates soared by 5 rubles: American banknotes came close to the mark of 75, and the euro – to 80 rubles. Such a sharp jump has not been observed since December last year, when the “wooden” position was pushed through by the “ceilings” of oil and gas prices set by the West, the ninth package of EU sanctions and the decline in prices for “black gold”. MK experts explained the reasons for the new collapse and predicted the future of the Russian currency.

The official dollar and euro rates set by the Bank of Russia on January 17 (74.76 and 79.97 rubles, respectively) did not surprise anyone. For the last week, the value of the world reserve currency has added 70-90 kopecks a day. Just a few days ago, the dollar was closer to 70, and the euro – to 75 rubles.

Similar large-scale jumps in the quotes of American and European banknotes took place on the eve of the New Year holidays. Then noticeable currency fluctuations were provoked by several factors at once. Firstly, the ruble reacted negatively to the setting by the European Union since January of the marginal cost of oil, as well as the introduction of a dynamic price ceiling for natural gas since February of this year. Secondly, the 9th package of sanctions against Russia published by the European Union dealt a blow to the “wooden” one: officials, deputies, judges, representatives of law enforcement agencies, media personalities, as well as several banks fell under the sanctions. Thirdly, the weakening of the ruble was stimulated by low oil prices, which fell from almost $100 to $80 per barrel.

Vladislav ANTONOV, financial analyst at BitRiver:

“From the point of view of domestic monetary authorities, nothing terrible is happening. Neither the Ministry of Finance nor the Central Bank are expressing concern over the noticeably losing ground of the Russian currency. This is not strange. The collapse of the Russian ruble only plays into the hands of the government. Russia’s budget deficit, unexpectedly formed in January, reached almost 60% of the annual plan. To patch up the budget hole in the amount of 2.93 trillion rubles (2% of GDP), the financial management is going to take advantage of another round of ruble weakening.

At such a pace of surrendering the positions of the “wooden” dollar by the beginning of spring, the dollar will easily reach the mark of 80 rubles. This is not bad for the budget, but it threatens to promote inflation and reduce the quality of life of ordinary Russians. From the point of view of the Ministry of Economic Development, the comfortable range of the dollar exchange rate is within 70-80 rubles. Overcoming these values ​​will significantly facilitate the solution of budgetary and other tasks of the government. Nevertheless, the weak ruble this time threatens to become a serious irritant for the low-income segments of the population, since the next “poverty tax” is provided to them.”

Fedor SIDOROV, private investor:

“Until February 5, it was obvious that the weakening of the ruble was not far off, since from that date Europe imposed an embargo on the supply of petroleum products from Russia, and the United States simultaneously set a ceiling on fuel prices from our country. It became obvious that export volumes would be reduced due to new restrictions. These prospects were further strengthened after the Ministry of Finance published reports for January 2023 with a record budget deficit of 1.7 trillion. Therefore, the fall of the national currency was expected and quite natural.

The Central Bank predicted last year that the Russian economy would feel the maximum effect from sanctions in 2023. The fall in exports, the decline in budget revenues simply do not give the Russian currency a chance to strengthen – the ruble will continue to decline against the dollar and the euro, so in the near future we will be able to see the “green” at 77-78 rubles, and the “European” – at the level of 82-83 ruble.

For the state, a weak ruble is better than a too strong national currency. Since, as a result of the depreciation of the ruble against the dollar, domestic products become cheaper in foreign markets and gain a competitive advantage, while transfers of taxes from exporters to the budget grow, since they are expressed in rubles. For citizens, this trend means only one thing – a further increase in the cost of imported goods and any products that contain an imported component. Considering that even in the production of grain we use foreign seed, machinery, pesticides, and so on, this means a further increase in prices for the most popular food products.”

Vladimir KOVALEV, TeleTrade analyst:

“In recent days, for the ruble, as if by selection, there were factors one worse and stronger than the other. Many of them have been latently accumulated for several months. Against the backdrop of sufficient “pacification” of the dollar in early February, in the region of 70 rubles, data on a record budget deficit sounded as a shock: compared to January 2022, current revenues decreased by 35%, while expenses increased by 59%. The deficit for the month amounted to 1.76 trillion rubles, while the planned amount for the whole of 2023 was 2.93 trillion rubles.

The decrease in revenues is mainly due to the collapse of profits, primarily due to discounts on oil and gas revenues provided to importers – by 46% at once compared to January last year and a reduction in gas exports to the Far Abroad by half. These factors mean a sharp decline in not only income, but also foreign exchange earnings, that is, the supply of foreign currency on the domestic market, which contributed to the growth of the dollar and the euro.

A new stress was the statement by Deputy Prime Minister Alexander Novak on a planned reduction in oil production in Russia in March by 500,000 barrels per day, which was made on February 10. In other words, the country’s currency will become even less revenue.

Further weakening of the ruble is inevitable. The market is waiting for the manifestation of the consequences of the embargo on the supply of petroleum products to Europe, introduced since February 5. Unlike crude oil, fuel oil and diesel fuel are extremely difficult to redirect instead of the EU to the East – to China, India and other countries of the Asia-Pacific region. It has its own developed oil refining and there is no need to import finished fuel.

Meanwhile, the domestic economy is contracting more than expected. According to Rosstat on February 8, retail sales in December decreased by 10.5% compared to December 2021, although in November the decrease was “only” 7.9%.

In addition to these drivers, the Russian currency is under pressure from external factors. A new package of sanctions is expected, as well as an even greater tightening of the conditions for the banking system to work with currencies.

The dollar itself is strengthening on the world market due to the prospects for a further increase in the interest rate of the US Federal Reserve. This circumstance contributes to the growth of “green” in relation to risky assets, which include “wooden”. There is a high probability that in the near future the dollar will go off scale for 75 rubles, but it is possible that it will rise to the level of 77-80 rubles. Such a movement in the current conditions is generally positive for the economy, because a stronger dollar means an increase in ruble export earnings: it is possible to reduce the budget deficit, support the income of exporters and the state.

There is also the other side of the coin. The weakening ruble means an increase in the cost of imports, the purchase of goods and services abroad. True, in Russia the volume of exports far exceeds the size of imports. Therefore, the gain in the first component is more important than the loss in the second component.