Analysts predicted the collapse of the ruble exchange rate to 110 per dollar

This, economists say, could happen in six months.

The dollar may rise in price to 110 rubles in the second quarter of 2024. Experts from the Roscongress Foundation spoke about this risk in their report “Prospects for the Ruble: Currency Control or Devaluation?” According to their forecasts, the dollar will grow by an average of two rubles per month if the current monetary policy in Russia continues. The study emphasizes the importance of strengthening administrative control in the foreign exchange market, and also proposes to oblige exporters to return to the country and sell all foreign exchange earnings. But will a new wave of tightening the screws help the ruble?

“If the option of gradual controlled weakening of the ruble is chosen, which can be justified within the framework of the current budget policy, the exchange rate will lose approximately 2 rubles. per month on average. This assumes an exchange rate of around 110 rubles. per dollar and below by the second quarter of 2024,” follows from the report.

Meanwhile, the day before, President Vladimir Putin, at a meeting on the draft federal budget for 2024-2026, said that it is necessary to understand the reasons for the weakening of the ruble and take timely measures to strengthen it.

The reasons for the weakening of the ruble are long-term fundamental factors that go far beyond the current monetary policy. They are as follows: a relative reduction in the inflow of foreign exchange earnings, especially in hard currencies. Increasing demand for currency, and hard currency. It is needed in increased volumes for imports that are becoming more expensive and more complex due to sanctions, “flight from risks,” and the withdrawal of assets from the country by non-residents. Plus an increase in budget expenditures, outpacing revenues. This requires an increase in the money supply and an increase in exchange rates against the ruble to increase export revenues and reduce the treasury deficit.

How realistic is the described scenario? According to Mark Goikhman, an analyst at the Capital Skills Financial Academy, in the current conditions the country benefits from a gradual weakening of the ruble. It is this, for example, that has largely made it possible to smooth out the very high budget deficit in recent months and finance government spending. But it is important to ensure that the devaluation is not too sharp and rapid, which can cause panic, disorientation in the economy, and excessively high inflation.

“Therefore, it makes sense to use exchange rate smoothing mechanisms. This is what the Central Bank is trying to do, in particular, by raising the key rate. But the consequences of this measure are very limited in impact on the ruble, since they do not affect the main factors of its weakening. The Central Bank and the Ministry of Finance are unable to do this using market methods,” the analyst continues.

The authors of the report, for their part, propose obliging exporters to return to the country and sell all foreign currency earnings. But will this help the ruble? Investment strategist at BCS World of Investments Alexander Bakhtin emphasizes that exporters are already selling about 80-90% of foreign currency earnings, and some of the funds received simply cannot be repatriated yet – for example, due to the inconvertibility of the Indian rupee.

“The potential introduction of a 100 percent standard will not bring the positive impact on the ruble as described in the report,” the expert is convinced.

In turn, a private investor, founder of the School of Practical Investment, Fedor Sidorov, recalls that the head of the Central Bank, Nabiullina, said in an interview that the regulator does not have a goal to keep the ruble exchange rate at “comfortable values.” In economics there are no such criteria at all, and others are important: the level of inflation or GDP growth.

“The forecast voiced in this report is quite realistic. And if now they are asking 96.21 rubles for the dollar, 102.91 rubles for the euro and 13.38 rubles for the yuan, then in 2024 we may well see the dollar in the region of 105 rubles and the euro in the region of 112–115 rubles,” says Sidorov.

Meanwhile, Alexander Bakhtin believes that in the absence of geopolitical and general market shocks, as well as taking into account the likely cooling of imports and current forecasts for the cost of energy resources, “we can see the average exchange rate at the level of 85-90 rubles per dollar.”

“The forecast of the Roscongress Foundation is quite realistic,” says analyst Mark Goikhman. – The trend of gradual weakening of the ruble will continue in the medium term. Even if at certain moments the ruble begins to strengthen. Therefore, the exchange rate of 110 rubles in the second quarter of 2024 will be adequate to the situation at that time.”