December collapse of the ruble: experts gave a disappointing forecast

How the fall of the national currency will affect the domestic economy

The traditional pre-New Year’s stock exchange “rally” – a gradual weakening – of the ruble before our eyes turns into a full-scale collapse. Over the past month, the Russian national currency “lost weight” by almost 20% against the dollar and the euro. What is the reason for such a trend, what levels will the ruble reach by the end of the year and how will this affect the domestic economy, experts told MK.

It’s hard to believe, but just a month ago, the Russian national currency exchange rate was confidently standing at around 62-63 against the dollar and the euro. And at the auction on December 22, the ruble was already trading at 72 per dollar and 77 per euro: the fall was about 20%. In this regard, the terms “weakening” or even “fall”, which until recently were used by stock analysts when describing the dynamics of the ruble, can be safely called irrelevant: we are talking about a full-fledged collapse of the national currency.

Why did this collapse happen right now, in the last month of the year? As is often the case, it was not a single factor that worked, but the simultaneous influence of several at once. Exchange analysts argue that the ruble was pressured by the “ceilings” of oil and gas prices set by the West, and the ninth package of EU sanctions, and the decline in prices for “black gold” in world markets, and the problems of the Russian budget due to a shortfall in tax revenues from exporters . All this was superimposed on the expectations of stock market players for a worldwide recession in 2023, which will inevitably affect the Russian economy and affect the export of energy resources.

Regarding the benefit or harm of the collapse of the ruble for the Russian economy, the opinions of experts differed. For the federal budget, which has become in deficit this year, a weak ruble is an unconditional help: due to its low cost, it is easier to plug holes in the treasury. It is no coincidence that even at the beginning of the summer, representatives of the economic bloc of the government made it clear that they would be satisfied with the exchange rate of 70-75 rubles per dollar. Their dreams have just begun to come true.

“If we estimate the annual budget deficit at about 2 trillion rubles, then to close the “hole” in it, the dollar exchange rate had to rise to 75 rubles,” BitRiver financial analyst Vladislav Antonov calculated.

The colleague is echoed by TeleTrade analyst Alexei Fedorov, who believes that the devaluation plays into the hands of the government, since with the return of the euro to the price corridor of 85–90 rubles and the dollar to 75–78 rubles, the budget of our country may again become a surplus with the cost of Urals oil unchanged. As the analyst noted, the depreciation of the ruble is also good news for Russian exporters, because in this way they compensate for the reduction in foreign exchange earnings and maintain their profitability.

As for the near future, here, too, the lower exchange rate of the national currency of Russia also seems to be an economic advantage, because it will allow domestic enterprises in the manufacturing sector, including import-substituting ones, to be more competitive in foreign markets, which is extremely important for the Russian economy in the new realities.

But what is good for certain sectors of the economy is bad for the citizens of the country. Indeed, with a weak ruble, the risks of inflation increase. According to Aleksey Fedorov, the rise in prices, which is obligatory with a noticeable depreciation of the Russian currency, will definitely undermine the purchasing power of citizens. Inflation in January with such a rate will definitely be higher, and if there is a need to purchase some imported goods – as a gift or for personal use – then you should do it now, while New Year’s discounts are offered everywhere.

Well, from the beginning of 2023, Vladislav Antonov is sure, we will see an increase in prices for many goods. First of all, all alcohol will rise in price due to an increase in excise taxes, in addition – cosmetics and household chemicals from “unfriendly countries”. The cost of household appliances and cars will also be revised upwards. Moreover, with a weak ruble, not only official imports will be revalued upwards. “Changes, as well as logistics costs, which are paid in dollars, will be reflected in the cost of goods delivered under the parallel import program,” Fedorov is sure.

A separate question: what lies ahead for the ruble? According to Vladislav Antonov’s forecast, even before the new year the dollar may strengthen to 80 rubles, and the euro – to 85 rubles. But at this level, the fall of the national currency will stop. “I believe that these are the price limits for the weakening of the ruble,” Antonov says. “The market is controlled by the Central Bank of the Russian Federation and, if financial stability is threatened, the regulator may strengthen the restrictive measures that were used after February 24: introduce commissions for the purchase of foreign currency or reduce limits on transfers to foreign accounts.”

But Alexey Fedorov believes that the current collapse of the ruble risks getting out of control and then we will see a repetition of the situation at the end of February 2022: that is, a new large-scale fall in the national currency to 90-100 rubles per dollar and 100-110 rubles per euro.