The Ministry of Finance buys yuan for the sake of “wooden”: in the fall, the dollar can soar to 100 rubles

Officials hold back the collapse of the national currency due to the new budget rule

The government decided to take extreme measures to stop the fall of the ruble. Starting August 7, the Russian Ministry of Finance will allocate 1.8 billion rubles a day for the purchase of foreign currency and gold. In the meantime, the “wooden” is experiencing the most severe depression since the beginning of the special operation: the dollar has broken through the mark of 97 rubles, and the euro has rolled away to 106. Meanwhile, the national currency, which is weakening before our eyes, creates the following collision: the budget deficit is decreasing, while inflation, on the contrary, is starting to grow. How the purchase of currency by the Ministry of Finance will affect the ruble exchange rate, MK understood.

On August 7, the Ministry of Finance begins buying foreign currency at the expense of additional revenues from oil and gas exports as part of the budget rule. According to the accepted norm, the Central Bank, on behalf of the key financial department of the country, must buy 1.8 billion rubles. in a day. Note that the Ministry of Finance can only use gold and yuan for this, since the Russian government had previously stopped buying currencies from unfriendly countries. All funds will be transferred to the National Welfare Fund (NWF). Meanwhile, the Bank of Russia plans to invest money from the NWF in permitted assets and achieve sales of 2.3 billion rubles from August 1, 2023 to January 31, 2024. This will allow daily net sales of yuan in the domestic market to bring 0.5-1.2 billion rubles. But will this save the ruble from a further fall?

Analyst “Markets Money Power” Sergei Ramaninov said that the weakness of the national currency is formed for three reasons.

“The negative impact on the ruble is the acceleration of the withdrawal of capital after the events of June 24, the ongoing recovery growth in imports and the difficulty/unwillingness to return export earnings to the country. The last point is especially interesting against the backdrop of the rising oil price in recent years,” he said. Meanwhile, oil prices have hovered around $85 since the end of July. In turn, the dynamics of the increase in GDP and budgetary parameters is positive, and the Central Bank has moved on to raising rates. All this should work in support of the ruble. However, at the moment, the rate of “wooden” has seriously dipped. For the dollar now they are asking for more than 97 rubles, and for the euro – about 106 and almost 14 rubles for the yuan (as of August 7, 2023).

According to Alexander Bakhtin, investment strategist at BCS World of Investments, currency transactions within the framework of the budget rule amount to a few percent of the daily turnover of yuan-ruble trading on the Moscow Exchange, therefore they are not among the determining factors for the ruble exchange rate. He noted that these operations can only smooth out the volatility of quotes.

“The transition from selling to buying yuan indicates an improvement in the situation with oil and gas revenues, which is positive for the ruble in the medium term,” the expert continues. “Meanwhile, a weak ruble is positive in terms of export revenues and budget filling, but the simultaneous devaluation leads to higher inflation, worsening business sentiment and making life difficult for importers.”

It should be noted that there are several quite logical routes in the actions of the financial authorities. Against the backdrop of a decline in the country’s oil and gas revenues (due to Western restrictions that led to a drop in actual exports), it is necessary to increase the volume of taxes collected. Of course, the growth in the value of the dollar is positive for the budget, but this revenue item does not fully compensate for the losses of the state from the reduction in exports of raw materials and sanctions restrictions. As a result of the weakening of the ruble in August, it is possible to receive additional oil and gas revenues in the amount of more than 70 billion rubles. However, the risk of further weakening of the national currency remains – the imbalance of the country’s trade turnover affects (a decrease in exports and an increase in import costs).

In the future, the replenishment of the NWF with yuan may lead to stabilization of the ruble exchange rate, believes a private investor, financial analyst Fyodor Sidorov. The expert emphasizes that this is definitely not a question of the coming months, since Russia is expected to have windfall profits from oil and gas exports only by the end of August, and the country will feel the effect of sales even later.

Ivan Samoylenko, managing partner of the B&C Agency communication agency, in a conversation with MK, noted that in stable periods the Ministry of Finance makes purchases of foreign currency, taking advantage of the low dollar and euro exchange rates (this is beneficial). Meanwhile, now that the dollar has broken through the mark of 97 rubles per unit, the acquisition of foreign currency by the Ministry of Finance will not contribute to the strengthening of the ruble.

“Already in the fall, the dollar may rise to 100 rubles per unit. But, let’s hope that this period will be short and the state will be able to keep the ruble from further devaluation,” he concludes.