The ruble required patience – Kommersant FM

The ruble intensified its fall. The euro is approaching 106.5 rubles, the dollar has reached 101 rubles. The last time rates stayed at these levels was in mid-August. The weakening of the ruble on October 5 coincided with Vladimir Putin’s speech at Valdai, in which he again criticized Western countries. Over the week, the dollar has risen in price by more than 3.5 rubles.

And it is unlikely that the authorities will be able to reverse the trend without stricter foreign exchange controls, says Vladimir Bragin, director for analysis of financial markets and macroeconomics at Alfa Capital:

“Increasing the rate on the ruble now has practically no effect. This will not lead to hot foreign money pouring into the Russian market and, in fact, strengthening the ruble due to the rush demand for ruble-denominated assets, as was the case before the SVO.

The rate hike in August had minimal impact – at the level of expectations. It had a slight impact on asset allocation, but nothing more. If we already see a surplus in the current account, or rather, its persistence, then it is obvious that the problem is not with oil prices, but with the fact that companies still prefer to store money abroad in the form of foreign currency. And many private individuals, by the way, too.

Therefore, in order to ensure constant demand for currency, it is necessary to maintain a positive surplus in the current account. When the Central Bank tightened restrictions on capital movements in 2022, we saw a strong strengthening of the ruble. As soon as the restrictions were lifted, the supply-demand balance of the currency immediately shifted in the other direction. It is difficult to come up with an option in the current conditions that would help the ruble, other than changing the direction of capital flows using market methods, or non-market, administrative ones.”

The Central Bank raised its key rate to 13% in mid-September and warned that this figure could remain high for a long time. In addition, Russian Urals oil has been rising in price in recent months, first exceeding the price ceiling set by the West, and by September, significantly breaking away from it. According to the Ministry of Finance, in September, on average, Urals was sold for $83 per barrel, while Brent price was $93. Bloomberg Economics Russia economist Alexander Isakov is confident that this will significantly strengthen the ruble, but this will take more time:

“The likelihood of restrictions being introduced is increasing. For individuals, they remain unlikely, but for companies, more stringent regulations may be introduced, an increase in the open foreign exchange position, and possibly stricter rules for the return of foreign currency earnings and its sale. But this does not negate the fact that such restrictions are unlikely to be useful for the ruble and even with some short-term effect they will not help it in the long term. The main factors for the national currency remain the price of oil and the level of ruble rates.

Now there is a large share of concessional lending, and we see that the credit impulse remains large. But this effect will still manifest itself, the credit market will begin to cool, and then the ruble will feel supported. The main risk may be incontinence and expectation of quick results. Those steps that previously gave a quick effect now require some more patience. I think if the Bank of Russia at least follows the expectations of the money market, which is now planning to increase the key rate to 14.5 by March 2024, over the next four months we should see a return of the ruble exchange rate against the dollar closer to 90.”

In recent days, however, Brent and WTI oil prices have fallen sharply due to fears that the slowdown in global economic growth will lead to lower demand, Bloomberg writes. On October 5, European Brent traded below $84 per barrel for the first time since August, American WTI also cost less than $84 – on Wednesday it showed the most serious drop in a year.

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Daniil Babkin