Roller coaster of the ruble: how much will the dollar cost in September

After the Central Bank made an emergency decision on raising the key rate on Tuesday, August 15, the ruble, which had previously been falling almost non-stop for three months, began to noticeably strengthen. For 4 trading days, it has risen in price by almost 10% against both the dollar and the euro. But now the question arises before all stakeholders: is this strengthening a short-term correction, which will soon be replaced by a new period of weakening, or is it a long-term trend? And to what levels will the course reach in this case? For answers to these questions, MK turned to Mark Goykhman, an analyst at the Capital Skills financial academy.

– During this week, the ruble rose sharply against the dollar and the euro. Can we assume that now the ruble has reached some point of equilibrium or will it continue to strengthen in the short term?

– The past week, for all its drama for the ruble, ended on the whole with its strengthening. Having started it at around 99.4 rubles, the dollar rose to 101.7 and fell to 92.6, and ended the week at 93.8 rubles. Almost literally – a breathtaking “roller coaster”. The downward movement of currencies against the ruble may continue in the near future. The balance is very fragile, local, similar to a temporary “truce” of the parties, ready to go further up and down.

– If the strengthening of the ruble continues, then to what levels can it reach? Is it possible to repeat last year’s history, when, thanks to the measures of the Central Bank, it almost doubled in a couple of months?

– Continued strengthening of the ruble is possible, but it is unlikely to go very far. Neither the Ministry of Finance nor the dominant exporting companies are interested in this. The excessive strengthening of the ruble in our economy is no less evil than its landslide collapse. Moreover, contrary to the well-known saying, it is impossible to choose the lesser of two evils. They are both worse.

Too strong ruble – a decrease in ruble income from the sale of goods abroad, budget revenues. A very weak ruble – a surge in inflation, disorientation of production, a decrease in incomes of the population, an increase in social tension.

Therefore, it is unlikely that the dollar will be allowed to fall significantly below 90 rubles in the near future. The government and the Central Bank had to bring down the panic and inflationary wave, indicating “no flags” in the form of a sacramental psychological milestone of 100 rubles per dollar. But there is no goal to repeat the “feat” of last year. Then the situation was different a year ago, and radical measures to limit the circulation of currencies were introduced to curb inflation that is much higher than it is now. They were taken against the backdrop of high volumes and prices of exports, a sharp collapse in imports, and maintaining a surplus budget. All this strengthened the ruble, but did not create significant dangers for the budget. Now the situation is fundamentally different, which prevents a significant strengthening of the currency and dictates the need not to go too far in this process.

– Is the current strengthening of the ruble a consequence of the exceptionally sharp rise in the Central Bank’s rate on August 15, or were some other factors influenced the rate?

– Only an increase in the rate could not noticeably change the situation. First, it was expected. Secondly, it does not affect the main reasons for the devaluation of the ruble. Therefore, after the decision to increase the key rate on August 15, the dollar again began to rise above 99 rubles. And then it was announced about the forthcoming administrative restrictions on the foreign exchange market. It was mainly because of last year’s memorable reaction to them that market participants began to move the dollar and the euro down.

– This time the Central Bank did without “draconian” measures to limit the foreign exchange market, such as the mandatory sale of part of the foreign exchange earnings. When and under what conditions can these measures be activated by the monetary authorities?

– Yes, it is really perceived by the market as extreme measures. There is no need for them yet, since the emotional panic was brought down so far only by the mention of them against the backdrop of an increase in the rate. They are possible in the event of some new force majeure circumstances or in the event of the resumption of the rapid movement of the dollar to the “forbidden” August heights.

– In principle, what factors are currently influencing the exchange rate to the greatest extent and is it possible for it to return to a fall?

– The reasons for the weakening of the ruble are strategically stronger than the factors supporting it. Against the ruble, there is a relative reduction in the inflow of foreign exchange earnings from exports and the deterioration of its “quality” – an increase in the share of hard-to-convert currencies. And also the demand for foreign currency and its outflow due to an increase in restored imports, the withdrawal of foreign exchange funds by business and the population abroad. In addition, the budget deficit, requiring an increase in the exchange rate for exports. And finally, geopolitical tensions and risks that contribute to the “flight from the ruble”.

The “shout” of the economic authorities plays for the ruble, showing the inadmissibility for market players to go beyond the line of 100-101 rubles per dollar. And also readiness for the introduction of more drastic administrative measures in the event of a weakening of the ruble. An increase in the key rate, which will limit the solvent demand of business and the population for imports, foreign currency and make ruble investments relatively more attractive. Plus a possible increase in prices for hydrocarbons. Locally – the tax period coming at the end of the month of increased sales of foreign exchange earnings by exporters for ruble payments to the budget.

– What is your forecast for the exchange rate: what will happen to it in the near future and until the end of the year?

– Most likely, in the absence of shock circumstances, the rate will be in the range of 90 – 98 rubles per dollar in the coming weeks. Such a forecast range may be perceived as too wide. But the uncertainty is very high at this time. And by the end of the year, the ruble exchange rate is more likely to move down. The mark of 100-101 rubles per dollar may well be overcome, but not abruptly, but smoothly, gradually.

– When the ruble was falling, there was a lot of talk about the inevitable rise in prices for all goods and services in the fall. Now that it is strengthening, is there any hope that this will not happen?

– After all, the ruble has strengthened in recent days only in comparison with peak values. And compared to June-July, with levels of 82-90 rubles per dollar, it is still much weaker. This easing has not yet been fully priced in. They will continue to grow. Although such an increase will be less than it would be at a rate of 100 rubles per dollar.

In addition, an increase in the Central Bank rate to a very high value of 12% will also have its own restrictive effect. It will relatively reduce the effective demand for goods, which will not make it possible to noticeably raise prices. But this is precisely from the point of view of demand.

From a supply standpoint, the situation is the opposite. Rise in the cost of loans helps to increase costs and limit the production and supply of goods and services, slowing down economic growth. And the impact on the market occupancy and the rise in the costs of suppliers are also inflationary factors. Only on the other side. Here, too, there is a difficult combination of “two evils”, of which “both are worse.”