Reality argued with Minister Reshetnikov about the dollar falling to 90 rubles

The head of the Ministry of Economic Development, Maxim Reshetnikov, posed a serious puzzle to the general public. According to him, the government’s forecast for an average annual exchange rate of 90 rubles per dollar for 2024 is “working” and is based on fundamental factors. Meanwhile, it is fundamental factors, such as a decrease in exports, that mainly contribute to the weakening of the Russian currency. And so far there is no sign of a break in this trend in the foreseeable future.

Two days earlier, the minister said that in 2024-2026 a “new equilibrium” could emerge in the foreign exchange market at the level of 90-92 rubles per dollar. Speaking at a meeting of the budget committee in the State Duma, Reshetnikov pointed to the positive dynamics in the situation with the trade balance.

This may partly explain his statements regarding the ruble exchange rate for next year. But precisely in part, with a huge degree of stretch. The official also mentioned “measures taken”: we are talking about a presidential decree on mandatory repatriation and sale of foreign currency earnings by exporters. But this is no longer a fundamental factor, and it has not yet started working.

There are a number of circumstances that cast doubt on Reshetnikov’s words. For example, according to the updated basic forecast of the Ministry of Economic Development itself for 2024, exports from the Russian Federation will amount to $471 billion, imports – $319.7 billion.

The positive trade balance will be only slightly higher than this year – $80.7 billion versus $74.4 billion. And most importantly: this is not reality, but a forecast, which was also recognized as optimistic in the State Duma. The reality, according to the Central Bank, is this: in January-August, the foreign trade balance decreased by 67.5% compared to the same period in 2022, exports fell by 31.1% over eight months (to $276.5 billion), imports increased by 17.5% (to $201.7).

Further: according to fresh data from Rosstat, in September monthly inflation accelerated to 0.87% (from 0.28% in September), annual inflation – to 6%. Reshetnikov’s department revised its April forecast from 5.3% to 7.5% in 2023. And the Central Bank openly proclaimed in its October bulletin “What Trends Are Talking About”: a tight monetary policy is serious and long-term, since something needs to be done about inflation. Accordingly, constantly rising bank lending rates continue to extinguish any hint of economic growth, cutting off businesses from sources of borrowed funds.

Another important point is the lack of coordination between the Central Bank and the financial bloc of the government. On Tuesday, October 17, the State Duma approved in the first reading the Ministry of Finance’s proposal to triple excise taxes on wine and by 4-7% on tobacco. This will bring only 39 billion rubles into the budget, but will spur inflation expectations. It turns out that all the good efforts of the Central Bank to curb the consumer price index are a priori doomed to collapse.

“All the talk about an exchange rate of 90 per dollar in 2024 has no basis – this is pure speculation,” says Alexey Vedev, director of the Center for Structural Research at RANEPA. – We have an absolutely crooked market, our largest banks have frozen correspondent accounts for the dollar and euro, our foreign trade and, accordingly, the balance of payments are distorted. Indeed, the rate of about a hundred is a bit expensive from the point of view of importers and those citizens who travel abroad. But now there is no force that can change the situation.”

You should not expect that the Russian currency will strengthen from the current 97.5 per dollar to 90, that is, by almost 10%. To do this, it is necessary that the fundamental factors change, so that exports begin to sharply increase in value terms, and imports begin to decline. However, nothing, including fairly high oil prices, foreshadows such a sharp turn in the dynamics of foreign trade, notes Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. This, according to him, is indicated by the Ministry of Economic Development’s own forecast, according to which the positive trade balance will grow very slightly in 2024.

“There is a rational grain in the conclusions of the Ministry of Economic Development regarding the dollar exchange rate of 90, but the figure looks somewhat underestimated,” says BitRiver financial analyst Vladislav Antonov. – On the one hand, objective factors of pressure on the ruble remain: reduction in export revenues, capital outflow, geopolitical risks.

However, the government version has its own reasons. These include: a current account surplus projected at $80-100 billion in 2023; obligation to return and sell foreign exchange earnings by exporters; high key rate of the Central Bank; a gradual restoration of imports, which will saturate the domestic market with goods and reduce excess demand for currency.”

Antonov considers the most realistic forecast for 2024 to be in the range of 95–100 rubles per dollar. And if geopolitical risks weaken – 85–90 rubles.