“It is impossible to reverse the weakening of the ruble”

— How did the ruble perceive the decree of the head of state?

— The dollar “fell and squeezed out”: from the closing level of 100.2 rubles per dollar on October 11, the rate rolled back to the area of ​​97 rubles per dollar, let’s consider this a currency “line of defense.”

— How long will the ruble have the strength to defend its positions in relation to the dollar and euro?

— Without additional “tightening the screws,” the exchange rate will once again (according to my calculations, the fourth) time roll back beyond the “red line” of 100 rubles per dollar: after all, the artificial strengthening of the ruble helps to reduce the price of imports, and therefore, increase imports. And this, in turn, works to weaken the national currency. In addition, the introduction of the mandatory sale of foreign currency earnings increases the costs and risks of exporters, which contributes to a decrease in exports and, again, weakens the ruble.

Exporters were forced to leave a significant portion of their proceeds abroad not because of a lack of patriotism, but because of the problems faced by the Russian banking system due to sanctions: cross-border money transfers for domestic businesses are associated with increased costs and risks due to bans. It is becoming increasingly difficult to transfer money from Russia abroad and back. Since the largest exporters have significant political resources, one should not expect significant changes in their behavior and a sharp increase in the influx of foreign currency into the domestic market. Therefore, it is hardly worth preparing for a rapid strengthening of the ruble.

— In this case, can the authorities take any other measures to strengthen the ruble?

– They can. Firstly, this is a tightening of the monetary policy of the Central Bank of the Russian Federation, primarily an increase in the key rate. The Bank of Russia can cool the overheated credit market by tightening macroprudential measures (aimed at reducing credit risks – N.T.). Secondly, if we are to put the economy into manual control mode, then we should not limit ourselves to exports. Limiting imports will also help strengthen the ruble. You can start with luxury goods, for example, banning the import of luxury cars and their spare parts.

— And what do you think: will these measures be taken?

— Judging by the formation of a powerful structural liquidity deficit, which reached 6 trillion rubles on October 13, the largest banks expect a further increase in the key rate at the next meeting of the Board of Directors of the Central Bank of the Russian Federation on October 27.

— Can we say that the government has found an effective way to regulate the exchange rate of the domestic currency?

– Don’t rush to conclusions. The consequences of such restrictions can be quite unexpected. Let us recall, for example, a recent story: due to a sharp increase in government spending, the Ministry of Finance reduces the fuel damper by half, and the dollar rises sharply. Due to restrictions on the price of gasoline on the Russian market, it becomes more profitable for gasoline producers to export it; accordingly, there is a shortage of gasoline in the domestic market and gas stations are closed. Then restrictions are introduced on the export of gasoline, which immediately overflows storage facilities, forcing factories to sharply reduce gasoline production. As a result, the damper was restored on October 1, but at what cost?

Let me remind you that the sacred level of 100 rubles per dollar was broken for the first time in March 2022 due to a sharp drop in exports. The second time – in mid-August 2023. Last week they struck a hundred for the third time: “This has never happened before, and here it is again,” as the unforgettable Chernomyrdin said.

– So why did this happen?

– Let’s try to figure out why the ruble, before the last presidential decree, was tumbling and falling like a defective Vanka-Vstanka. The main reason for the devaluation in the last six months is a decrease in exports and an increase in imports. A scissors effect occurs; as a result, the inflow of currency into the Russian economy weakens, and the outflow increases. The influx of currency is weakening due to sanctions – primarily due to the refusal of unfriendly countries to buy Russian hydrocarbons, as well as due to the introduced price ceiling for Russian oil at $60 per barrel.

— Wars in the Middle East have always had a positive effect on oil prices, no matter how cynical it may sound. And the cost of hydrocarbons has always strengthened the ruble. What will happen this time due to the conflict between Israel and Palestine?

— The oil market reacted relatively weakly to this conflict, since it did not affect the infrastructure important for this market. Neither Israel nor Palestine are any significant players in the oil market. There was nothing like the dramatic rise in oil prices due to the 1973 Arab-Israeli War.

Due to the sanctions ceiling of $60 per barrel, the ruble reacts much less strongly to changes in world oil prices than before the CBO.

— The fall of the ruble was not only due to exports?

— Currency outflow is increasing due to the fact that imports continue to grow. New supply chains are being formed to replace those lost due to sanctions. We buy imports of lower quality, but more expensive ones.

Imports have recovered to pre-WWE levels. However, instead of first-class goods, we receive goods, relatively speaking, of third class, but often at first-class prices. Or we get the same goods, but much more expensive. Instead of Mercedes, Audi and Volkswagen, we buy Chinese hawalas and Cherries. Even Iranian-made cars are appearing, which before the sanctions would not have had the slightest chance of entering the Russian market.

Let’s see how the “scissors” of foreign trade work. Exports in the second quarter of 2023 fell by $48 billion, almost a third, compared with exports in the second quarter of last year. Imports, on the contrary, increased by more than a third – by $19 billion. Accordingly, the difference between exports and imports decreased more than three times: from $95 billion to $27 billion. The demand for currency from importers is growing, and its supply is falling, which is leads to a weakening of the ruble.

– We have sorted out this reason. But she’s not the only one, is she?

— Yes, the second reason for the devaluation is the huge budget deficit, financed, among other things, by emissions. The federal budget deficit for 9 months of 2023 amounted to 1.7 trillion rubles. The “printing press” was red-hot: as of September 1, the monetary base increased over the year by 30% or 6 trillion rubles. Money emission entails an increase in the money supply, which spins the inflation flywheel and contributes to the weakening of the ruble.

The third factor in the devaluation of the ruble is the increase in social payments ahead of the presidential elections in March 2024.

— There is an opinion on the market that the Bank of Russia has a task to keep the ruble from weakening before the elections. Is this a true version?

– Hardly. The main task of the Central Bank of the Russian Federation is to reduce inflation. The regulator pursues an inflation targeting policy. Of course, the devaluation of the ruble contributes to inflation, but the pass-through effect is quite weak: an increase in the dollar exchange rate by 10 rubles leads to an increase in inflation by half a percentage point.

— Many critics consider the Bank of Russia to be responsible for the situation with the ruble and, of course, representatives of the real sector of the economy regularly express dissatisfaction with high loan rates. They are right?

— The Central Bank is criticized, firstly, for the high key rate and, secondly, for the collapsed devaluation of the ruble. Meanwhile, an increase in the key rate contributes to the strengthening of the ruble. It was thanks to the sharp increase in the key rate on August 15 – from 8.5% to 12% – that the regulator managed to stop the collapse of the ruble and even temporarily reverse the trend.

— Presidential Press Secretary Dmitry Peskov advised Russians in early October to stop closely monitoring the dollar exchange rate, called it a “rudiment of the past” and urged them to focus only on the ruble zone, in which we live. In your opinion, has Russia stopped depending on the American currency?

— As sanctions tighten, Russia’s dependence on toxic currencies weakens, but its dependence on “friendly” currencies, primarily the yuan, increases. The trouble is that the yuan is a “third-class” currency; it is not even a freely convertible currency. Finance Minister Anton Siluanov expressed a useful idea about the attitude towards the decrease in the purchasing power of the ruble on September 28 at the Moscow Financial Forum. He stated that “if you don’t buy, then the prices are normal.”

— So what are the prospects for the ruble in the medium and long term? Will the rate go up or down?

— In conditions of geopolitical conflict and a sharp increase in government spending, a weakening of the national currency is inevitable. With various “bells and whistles”—tightening regulation and monetary policy—this process can be weakened, but it is impossible to reverse it.