The ruble strengthening potential was considered exhausted: what will the exchange rate be by the end of the year?

Analyst Belyaev: “The Russian currency will hang around 90-91 per dollar”

Having reached 88.7 per dollar, the ruble returned at the end of the week to the psychological level of 90, as if afraid of its own agility. Although earlier it seemed that nothing would stop his victorious, almost month-and-a-half-long march to former highs. And now it’s not entirely clear what’s next: either the Russian currency has exhausted its strengthening potential and will continue to remain in positional defense, or is it still capable of “jumping in over its head”?

It has been a very long time since the ruble has demonstrated such a sharp dynamics: from the collapse of early October values ​​(over 102 per dollar), it has strengthened against the dollar by more than 13 units. Despite the fact that from January to October the national currency of the Russian Federation lost about 40%. As stated by the head of the Central Bank, Elvira Nabiullina, “the exchange rate is influenced by fundamental factors related to our balance of payments, first of all, the increase in exports in terms of price indicators in general.” In September and October, Russian exports of goods and services amounted to $40 billion and $37.2 billion, respectively, while in the second quarter – $34.5 billion on average per month.

In turn, imports at the end of October decreased by $1.8 billion (or by more than 7% compared to September), to $22.9 billion. This result is almost 10% lower than in the first nine months of the year. Budget revenues from export supplies increased against the backdrop of rising prices for Russian Urals oil: a barrel has increased in price by more than 20% since July. Two more factors, this time opportunistic, made a significant contribution to the strengthening of the exchange rate. Firstly, exporters are now required to return at least 80% of their earnings in foreign currency to the country, and sell at least 90% of these volumes on the domestic market. Secondly, as Nabiullina noted, due to the high (15%) key rate of the Central Bank, ruble demand for imports falls, and ruble savings become more attractive for Russians.

Meanwhile, the presidential decree on mandatory repatriation and sale of foreign currency earnings has a specific validity period of six months. Having entered into force on October 16, it will formally lose it on April 16. And then the decision on a possible extension will be made based on the economic (and political) feasibility and physical capabilities of the companies. And there is a high probability that by that time the need for this measure will no longer be in the eyes of the authorities. Moreover, the presidential elections will be behind us. In general, as the experience of 2012 and 2018 shows, after such events the ruble always weakened uncontrollably.

“Money is only a derivative of the national economy, its successes or, on the contrary, disadvantages,” argues financial analyst, Candidate of Economic Sciences Mikhail Belyaev. – I think that such a long process of strengthening the ruble, until last Friday, is due to three groups of factors. Firstly, over the past few weeks the dollar has fallen against not only the ruble, but also all world currencies. Secondly, Russian exporters began to share foreign currency earnings with the state. Finally, in the fall, there really were positive changes in our economy, which few people could have guessed about back in the summer. In the third quarter, manufacturing grew by 5.5% and overall GDP grew by 3%.

However, this is largely due to the military-industrial complex. Against this background, the question arises: does the ruble have natural prerequisites for further strengthening? There are none, Belyaev is convinced. It is unlikely that the dollar will continue to weaken: the American economy, based on private enterprise, has been and remains very resilient and strong. As for the mandatory sale of foreign currency earnings, this is a manual regulation measure: today it works, tomorrow it doesn’t. Moreover, it does not determine the fundamental, economically sound course, but only contributes to certain fluctuations around it. Finally, there are doubts that with such a high key rate of the Central Bank, the Russian economy will maintain its current growth rate in 2024. It is more likely that there will be attenuation, despite all the budgetary efforts and achievements of the military-industrial complex. According to Belyaev, until the end of the year the ruble will “hang around” in the region of 90-91, and its subsequent strengthening is unlikely.

In addition to such factors as the mandatory sale of foreign currency earnings by exporters, as well as the reduction of the Urals discount to Brent at relatively high world oil prices, the tax period (at the end of each month) affects the ruble. However, a more significant strengthening of the exchange rate is hampered by new packages of Western sanctions and still high domestic demand for imports, recalls leading analyst at Freedom Finance Global Natalya Milchakova. And nothing even indicates the hypothetical possibility of the exchange rate returning to the values ​​​​at the beginning of 2023 – to 70-72 per dollar.