The ruble has fallen to ten-month lows: what will stop the fall

The national currency is weakened by Russia’s budget problems and the expectation of new sanctions

In less than three weeks in February, the dollar and the euro strengthened by 5 rubles each. Now the exchange rate has new benchmarks: 75 per dollar and 80 per euro. The last time the main “unfriendly” currencies at these levels were seen by market participants almost ten months ago – on the twentieth of April. To what levels the ruble will sink as a result of the current round of weakening, experts told MK.

The national currency is retreating from previously captured heights against the backdrop of lower oil revenues and data on the budget deficit. Recall that from December 5, restrictions were introduced on the sale of Russian oil by the EU and G7 countries, and from February 5, an embargo on the import of Russian oil products was added to them. The consequences of the imposed sanctions have already had a negative impact on the trade balance. And further, judging by the forecasts, it will not be better, which also does not give the ruble reasons for optimism. According to the Central Bank, the positive balance of Russia’s foreign trade in January of this year decreased by 2.3 times – to $9 billion compared to $21.1 billion in January last year. In February, the decline in exports may continue due to the cumulative effect of all previously imposed sanctions on Russian energy resources. In March, Russia will voluntarily cut oil production by 500,000 barrels per day, that is, by 5%. This will also most likely lead to a decrease in foreign exchange earnings from exports and will in no way contribute to the strengthening of the ruble…

He is also under pressure from the budget deficit. According to the Ministry of Finance of the Russian Federation, this indicator in January 2023 amounted to 1.76 trillion rubles, compared with 125 billion rubles in the same month a year earlier. The size of the budget deficit has reached 60% of the plan for the entire current year. According to the Ministry of Finance, by December it should not exceed 2.93 trillion rubles, or 2% of GDP. Due to the fall in oil and gas revenues, the financial department has already had to sell 3.6 tons of gold.

The mood of the national currency (more precisely, of the speculators who decide its fate on the stock exchange) was also spoiled by another round of discussions about the expected introduction of the 10th package of sanctions. Recall that in the European Union they want to coincide with February 24 – the anniversary of the start of the special operation in Ukraine. It turns out that the Europeans do not care so far: many of the proposed measures do not find common understanding. But there are points in the 10th package that hardly anyone in the EU will dispute. Among them, the imposition of sanctions against another 100 Russians and a number of companies, including the financial sector. In particular, the European Commission proposed to disconnect three more large credit organizations from the international interbank system SWIFT. “The pressure on the Russian currency is also exerted by another increase in sanctions rhetoric,” said Yury Kravchenko, head of the banking and money market analysis department at Veles Capital investment company. “In general, investors have already developed immunity to new packages of restrictions, but reports of sanctions against large Russian banks are always accompanied by an alarming reaction in the Russian market.”

At the same time, the ruble may even strengthen in the coming week, since the tax period for exporting companies will also be added to the sales of foreign currency under the budget rule: the peak of their payments will be on February 27. We also note that the Ministry of Finance is not sitting idly by and is constantly trying to find ways to replenish the deficit budget. Among the latest innovations is the introduction of a new scheme for calculating oil taxes, which should bring the state treasury an additional 600 billion rubles, which can also support the national currency.

However, in general, the prospects for the dollar and the euro in our country are very positive, since the key financial departments – the Ministry of Finance and the Bank of Russia – are not interested in a strong ruble. Already in early March, according to TeleTrade analyst Vladimir Kovalev, the dollar may rise to 77-80 rubles, which will be positive for the economy. A strong US currency will increase the ruble export earnings, thus the authorities will reduce the budget deficit, support the income of exporters and the state.