What caused the dynamics of the ruble exchange rate

There are no threats to financial stability

Pressure continues on Russia: a coalition of Western countries is introducing new sanctions and restrictions against us against countries close to us. Under these conditions, additional pressure is also created on the Russian currency, which has seriously fallen in price since the beginning of July. On this score, some experts sounded the alarm, but the Bank of Russia and the Cabinet of Ministers remain enviably calm and say that the current devaluation does not pose a threat to financial stability. Is this really so, says Daniil Nametkin, director of the Center for Investment Analysis and Macroeconomic Research.

It should be recognized that, thanks to the joint actions of the Russian authorities, it was possible to stop the largest number of sanctions risks. This allowed the domestic economy to demonstrate a limited decline in 2022 by only 2.1 percent.

At the same time, sanctions pressure from the EU continues – in June 2023, the Europeans decided to introduce the 11th package of sanctions to strengthen existing restrictions. In particular, the EU countries have reserved the right to impose restrictions on third countries that supply sanctioned products to the territory of the Russian Federation.

Under these conditions, additional pressure is created on the Russian currency, as the private sector is forced to adjust supply chains in order to maintain the stability of export-import operations. It is worth noting that the domestic economy is still in the process of transformation, which is why such short-term fluctuations in the market rate will occur over a long period of time. At least until the final alignment of all business processes.

The tightening of sanctions is forcing importers to look for alternative supply channels, which leads to an increase in the cost of foreign products. It is possible that partners from third countries acting as transit territories have increased the risk premium for Russian buyers.

Under these conditions, organizations need to allocate more resources to maintain a stable supply. In addition, importing companies could increase the volume of transfers of funds from deposit accounts in Russian banks to similar accounts in credit institutions of third countries acting as transit territories for import operations.

The dynamics of the ruble exchange rate is also influenced by the decrease in the balance of the current account of the balance of payments. In the context of growing volumes of imports, at the same time, there is a reduction in export operations, as a result of which the balance of the current account of the balance of payments decreases. Thus, there is a smaller inflow of foreign currency compared to its outflow, which creates additional pressure on the dynamics of the Russian currency exchange rate.

From an investment point of view, market participants try to minimize various risks (market, interest, credit, and others) by choosing the least risky ones, or by demanding a higher risk premium. Given the sanctions restrictions, as well as the gradual tightening of monetary policy in developed countries, there may be a partial flow of funds to more “safe” jurisdictions in terms of investment strategy.

However, the number of such transactions is not significant, since the current restrictions also affect the Russian financial infrastructure that allows such transactions. The fiscal rule was revised following the imposition of large-scale sanctions in order to maintain the stability of the budgetary system of the Russian Federation, as well as to prevent an excessive reduction in the National Welfare Fund (NWF). Thus, the updated version provides for a guaranteed accumulation of funds in the accounts of the National Welfare Fund in case of exceeding the strictly established limit of basic oil and gas revenues. In this regard, the full income from the growth of oil prices is absorbed mainly in the NWF, which may provoke a short-term currency deficit in the open market.

It should be noted that the macroeconomic situation in the Russian Federation is actively improving, as evidenced by a number of economic indicators. In particular, consumer and credit activity is noticeably growing. A significant role is also played by the growing volumes of budget expenditures, of which a significant part is allocated for investment purposes.

Under these conditions, there is an increased demand for imported goods, which have no analogues on the domestic market. But this phenomenon is temporary, and our economy is capable of replacing almost all foreign goods and services that have left the country in a relatively short time.