The falling ruble refused to listen to Putin and the government

On the morning of October 3 on the Moscow Exchange, the American currency exchange rate broke through the “psychological” level of 100 rubles for the first time since August 14. Before this, the dollar was seen so strong only in March 2022, after the introduction of Western sanctions. During the day, however, the rate corrected to just above 99 rubles, but the question of where the dollar will go next remains open.

Kremlin Speaker Dmitry Peskov believes that the dollar at 100 rubles should not cause concern among Russians. He emphasized that macroeconomic stability in Russia is ensured: the Central Bank of the Russian Federation and the government are in full control of the situation, and the increased attention of citizens to the American currency is a vestige of the past.

More than two weeks ago, on September 12, at the Eastern Economic Forum (EEF), Vladimir Putin promised to stabilize the ruble exchange rate without “sharp movements,” and the head of state did not see any insurmountable problems in this. At the same event, First Deputy Head of the Ministry of Economic Development Ilya Torosov said that the department has a plan to return the dollar to the corridor of 70 to 80 rubles, and it will be followed.

Moreover, there was no doubt in anyone’s mind that the government could begin to act, because in mid-August, when the dollar began to reach one-and-a-half-year highs, the Bank of Russia, at an extraordinary meeting of the council, urgently and sharply raised the key rate to 12%, and a month later to 13%. And at first this measure helped: for some time the dollar stayed below the 100 ruble mark, but in early October it began to break through this “psychological level” again.

According to Freedom Finance Global analyst Vladimir Chernov, the weakening of the Russian ruble is happening against the backdrop of several factors. Firstly, the price of Brent oil began the trading week with an immediate fall of 5% and fell below $90 per barrel yesterday for the first time since September 8. Secondly, last week the tax period in Russia ended, which traditionally supports the value of the Russian ruble against the backdrop of increased sales of foreign currency earnings by exporters and growing demand for rubles, which they need to pay taxes.

As for the government’s actions, the authorities need a new plan, since the old one did not work. “The Russian Central Bank has already increased the key refinancing rate at an emergency unscheduled meeting in mid-August by 3.5% and at a scheduled meeting in mid-September by another 1%, but so far these measures have not been enough,” the expert notes. “Therefore, the authorities will have to tighten monetary policy once again, sacrificing economic growth in the country, since after raising rates it is slowing down.”

As a “new plan,” another increase in the key rate may be undertaken. “The next resistance level is at 110 rubles, but I don’t think that the authorities will allow the ruble to fall another 10%, so most likely the range of 101-105 rubles per dollar will limit further growth in the value of the American currency,” the analyst added.

So why did the monetary authorities ignore the president’s instructions and allow another weakening of the ruble? According to Mikhail Zeltser, an expert on the stock market at BCS World of Investments, there is still a shortage of foreign currency on the market, and the need for it is significant – against the backdrop of such an imbalance of supply and demand for currency, the ruble is falling. Revenues from exporters are small, currency purchases from importers are significant, capital outflow is significant, and government expenses are high in the current geopolitical environment.

“There is also a factor of a speculative attack against the ruble,” the analyst is sure. “Moreover, the dollar itself on the global foreign exchange market the day before rewrote the annual maximum, and all reserve currencies fell to the annual bottom – the euro, the yuan, the yen.”

However, the observed high exchange rates and the volatility of the ruble are at odds with the fundamental value of the national currency. According to Zeltser, the ruble is now oversold and currencies are overbought, and this state of affairs is unlikely to remain for long. Therefore, the recovery of the ruble is a matter of time. This fall, the dollar is more likely to approach 90 rubles than to rise above 100.

“Today the main hope for the ruble is psychology and exporters,” says financial expert Alexey Krichevsky. — The psychology is that the authorities will not lower the ruble to the bottom so harshly during the elections and will keep it in the region of 90-95 rubles per unit of American currency, with one or two exits to the region of 85 rubles.

But after the publication of the budget, this thesis actually crumbled: the deficit was too large and it was dependent on export earnings. Therefore, exporters may be required to sell foreign currency earnings in the maximum possible volume, but there is a big problem here: currency received under intergovernmental contracts can easily remain abroad, and the volumes there are very large – billions, if not tens of billions of dollars.”

Technically, a correction of the dollar to 95 rubles is expected almost this week, the expert believes. But after this, there will be no technical brakes on the devaluation of the ruble – only political or regulatory decisions.

Meanwhile, the Bank of Russia set the official dollar exchange rate at 99.2677 rubles on October 4, which is 79 kopecks higher than the previous figure. The euro exchange rate was increased by the regulator by 19 kopecks, to 104.0621 rubles.