The ruble does not hold on to the foundation

The data of the Bank of Russia indicate a steady and noticeable decrease in estimates of the current account surplus of the balance of payments of the Russian Federation. Analysts believe that one of the reasons is the revaluation of export earnings, which also affects the increased volatility of the ruble exchange rate. Also among the reasons for the discrepancy between the exchange rate and forecasts is the growing effect of one-time factors, including the purchases of foreign currency by companies leaving the Russian market, and the sale of reserves by the Ministry of Finance to finance the budget.

According to the Bank of Russia, the current account surplus of the balance of payments of the Russian Federation in January-May 2023 amounted to $22.8 billion against $123.8 billion a year ago. Such a significant difference with the indicators of January-May 2022, when imports fell sharply and exports grew, is almost entirely due to a decrease in the trade surplus of $99.6 billion. Since last spring, the situation has completely reversed: the volume of exports of Russian goods and their prices are declining, while imports are growing, the regulator explains.

The deficit in foreign trade in services also increased markedly. If in January-May 2022 it was $5.7 billion, then in January-May 2023 it was $9.3 billion, of which $4.1 billion was formed over the past two months. However, this estimate is likely to decrease – as well as the current preliminary estimates of the current account surplus in May and earlier. So, in April, the Central Bank estimated the current account surplus at $6.8 billion, and now at $2.3 billion (the estimate of the indicator in the first quarter of 2023 for April-May was reduced by $3.3 billion), which may indicate both a noticeably smaller contraction of exports (or restoration of imports), and the accuracy of the corresponding assessments of the regulator in the current environment.

The estimated deficit in the balance of primary and secondary income in January-May 2023 amounted to $12.6 billion against $14.8 billion recorded in the corresponding period of 2022. The reason is a decrease in the volume of investment income accrued by Russian companies in favor of non-residents. Meanwhile, “the build-up of foreign assets was presented mainly in the categories of “other investments” and “direct investments,” the regulator adds explanations, indicating that “the reduction in liabilities in the financial account was formed, among other things, as part of the mechanism for issuing replacement bonds.”

According to the baseline forecast of the Central Bank for 2023, updated at the end of April, with an average annual oil price of $55 per barrel, the current account surplus will be at the level of $47 billion (the surplus of trade in goods is $117 billion, the deficit in trade in services is $23 billion, and revenue — minus $47 billion). “With increasing sanctions pressure on exporters and in the face of deteriorating commodity markets, this forecast may turn out to be overstated,” analysts of the MMI Telegram channel note and add: “The weakness of foreign trade and a dramatic reduction in the trade surplus is an exhaustive answer to the question of what is happening with the ruble “.

Meanwhile, many analysts do not agree with the last statement (see Kommersant of May 15). Thus, Raiffeisenbank economists explain: the current volatility of the ruble indicates that, in addition to the fundamental impact of the balance of payments (which can be realized with a lag), against the background of reduced liquidity of the Russian foreign exchange market, the exchange rate is significantly affected by one-time factors that form additional demand (for example, transactions related to the withdrawal of foreign companies) or the offer of foreign exchange (currency conversion by exporters before tax or dividend payments).

Back in April, analysts believed that the exchange rate of 70–80 rubles/$ would be fair in the coming months, but since the end of May it has been steadily exceeding the upper limit of this range. According to Alexander Dzhioev from Alfa Capital Management Company, two factors explain the current rate dynamics. The first is a delayed reaction to the previous wave of falling oil prices: the price of Brent was below $72, which is now, after a couple of weeks, taken into account in the value of the ruble. The second is the recent announcement by the Ministry of Finance about the sale of a large amount of yuan in the new reporting period (see Kommersant of June 5) – by selling money to the NWF, the department covers the lost income from exports. “This is contrary to market expectations, as many assumed that export supplies were about to expand,” Mr. Dzhioev notes. The latter, most likely, also explains the noticeable deterioration of the Central Bank’s estimates of the current account surplus in April.

“The current account balance will always be large enough to meet the demand for savings in foreign assets (that is, the demand for capital outflow), and the exchange rate will be just enough to provide a corresponding current account,” states Alexander Isakov of Bloomberg Economics. “Yes, the structure of flows has changed (including due to the retention of part of export earnings in external accounts), but the ability to understand the main flows in the current and financial accounts (where there are many more unknowns), I am sure, will make it possible to better predict the movements of the ruble,” no Igor Polevoy from Loko-Invest agrees with him.

Artem Chugunov