Ruble in March: experts expect sharp exchange rate fluctuations

Natalia Milchakova, Leading Analyst at Freedom Finance Global:

“We expect that, as in February, in the first month of spring, the ruble will continue to be subject to sharp fluctuations. According to our forecast, in March the dollar/ruble exchange rate may move in the range of 70-76 rubles, the euro exchange rate in the range of 76-82 rubles.

For the domestic currency, inflation will be the main risk in March. The decision of the Bank of Russia on the key interest rate will depend on the statistics on annual and monthly inflation for February, which will be released by the end of the first ten days of March. The Russian regulator will make this decision public at the board meeting on March 17, and our baseline forecast assumes that the key rate will again remain at the same level of 7.5%. However, if inflation in February and weekly inflation in March turn out to be higher than expected, we do not rule out an increase in the key rate to 7.75%. The ruble may react to an increase in the key rate by strengthening, and if the rate remains at the current level, the dynamics of the national currency exchange rate will depend on the nature of the regulator’s comments.

On March 16, the European Central Bank (ECB) will announce its decision on interest rates. With a high probability, he will again raise interest rates by 0.5% to curb inflation. Another sharp increase in ECB interest rates may affect the strengthening of the euro against the ruble.

On March 22, the decision on interest rates will be announced by the US Federal Reserve, and it is expected that interest rates in March, as in February, will be increased by only 0.25%. This decision may weaken the dollar against the ruble in the short term, however, if the tone of the regulator’s comments remains hawkish, the dollar may react to the Fed’s decision by strengthening.

The tenth package of sanctions, which will most likely be announced back in February, will not affect the dynamics of the ruble in March. The general geopolitical background, oil prices and the fiscal rule will remain more significant for the ruble. In March, the ruble may fall a little more, but we do not expect any collapse and growth of the dollar above 100 rubles, as it was in March 2022. There are no grounds for such a development of events, since last March there was a reaction of the ruble to the blocking of almost half of the gold and foreign exchange reserves of the Central Bank of the Russian Federation abroad and the mass exodus of foreign brands from Russia. Similar events are not expected this year, and by the end of last year our country had almost completely restored its gold and foreign exchange reserves, which are now stored in gold, yuan and currencies of friendly countries. Any news about positive transformations in the real sector of the Russian economy, improvement in macroeconomic indicators, including the continued slowdown in inflation rates, may play in favor of the ruble’s strengthening.

Ruslan Spinka, Director of Sales and Customer Service at Fontvielle Investment Company:

“The dynamics in the foreign exchange market is closely related to the development of the geopolitical situation and the sanctions rhetoric, which has intensified given the approaching anniversary of the start of the NWO.

Now we are seeing an expansion of restrictions on Russian exports. On February 5, 2023, in addition to the sanctions already in force, a ban on sea shipments of domestic petroleum products to the EU, as well as price ceilings, came into force. At the same time, a presidential decree has been in force since February 1 of this year, prohibiting oil supplies to those states that adhere to price ceilings for the Russian energy resource. Even if our country manages to find new buyers for half of the oil previously supplied to states that supported the sanctions, about $8 billion in revenue could be lost in a year.

Russian revenues from gas exports may also decline. Against the backdrop of a warm and windy winter, which increased the amount of energy supplied by wind farms, in January, gas prices updated multi-month lows.

An additional factor that affects the dollar is the gradual recovery of imports. The volume of goods that are imported into Russia through third countries is steadily growing, respectively, there is an increase in demand for foreign currency. It also weakens the ruble.

Against the background of falling oil and gas revenues, which in January 2023, according to the Ministry of Finance, amounted to 52.1 billion rubles, the Bank of Russia increased sales of Chinese yuan in accordance with the updated budget rule. For a month, from February 7 to March 6, the Central Bank will sell the Chinese currency for 160.2 billion rubles. Compared to January of this year, sales almost tripled: it grew from 3.7 billion rubles to 8.9 billion rubles a day. This supports the ruble, but not enough.

If we take into account the totality of factors that put pressure on the value of the ruble and support it, we can assume that during March the dollar will be at the level of 75 rubles. There may be periods of strengthening of the national currency to the level of 72 and weakening to 78 rubles per unit of the US currency. In the absence of shock geopolitical events, a repetition of the March 2022 scenario with a short-term but sharp collapse of the ruble seems unlikely.”

Vladimir Kovalev, TeleTrade analyst:

“In March, the ruble will be affected by opposite factors. In particular, a contraction in foreign exchange earnings is likely with a relative reduction in export earnings. The consequences of the embargo on European supplies of petroleum products, the announced reduction in oil production, may begin to appear.

However, on the other hand, in the event of an increase in demand and oil prices due to the approaching car season and the “opening” of China after covid, discounts on the sale of Russian oil may be reduced. Exporters will be encouraged to do this in advance by the change in the calculation of the price of oil for taxation, which is expected from April.

Other external factors are mainly related to geopolitical and sanctions risks. But if the matter is limited to the measures announced for the tenth package of sanctions (such as disconnecting several more Russian banks from the SWIFT system), then this will have little effect on the ruble. These measures are already included in the ruble exchange rate in February and do not cause significant additional damage to it.

An important negative may be the tightening of the monetary policy of the leading central banks and their increase in interest rates. This makes commodity assets less in demand and puts pressure on emerging markets, including the ruble.

An internal factor negative for the ruble would be an increase in the budget deficit, an increase in government spending with an increase in the ruble supply in circulation. The spring seasonal increase in imports will increase the demand for the currency, which is also negative for the ruble.

These factors can be weakened by others, oppositely directed. In particular, an increase in the sale of currency from reserves with an increase in its supply on the exchange. An increase in the key rate of the Central Bank is also possible in the event of an increase in inflation or its expectations. Additional business tax deductions are also possible to replenish the budget.

In general, a gradual weakening of the ruble in March is most likely. But in the absence of extraordinary events, it is quite limited, with possible dynamics in both directions in the corridor of 70-78 rubles per dollar.”