On Thursday, September 21, the Russian government by order gave foreign banks and brokers from more than 30 “friendly and neutral countries” access to Moscow Exchange trading – they are allowed to trade in currencies, options and futures.
After this decision, the ruble began to strengthen: the dollar gradually fell from 96.6 rubles in morning trading to 95.3 rubles by 15:00 Moscow time, according to Moscow Exchange data.
In addition, the government is discussing the introduction of temporary “exchange duties” for exporterswho hold currency abroad. This will mainly affect fertilizer producers.
So, at an exchange rate of 80-85 rubles per dollar, the planned rate is 3% or 4% of the customs value of supplies, at an exchange rate above 90 rubles – 5.5%, 7% – at an exchange rate above 95 rubles. At 80 rubles per dollar, duties will be zeroed. The duration of duties is from three months to a year.
“The ruble exchange rate has calmed down a little, so new measures in the direction of strict foreign exchange controls are not required yet, but they could be introduced if the ruble again becomes cheaper than 100 rubles per dollar. But fundamentally, the ruble should be stronger, given that the price of Brent oil is approaching $100 per barrel,” says Sergei Suverov, investment strategist at the Arikapital management company.
“For now, we expect only short-term support for the ruble from the planned measures,” said Yuri Kravchenko, head of the department for analysis of banks and the money market at Veles Capital Investment Company.
At the same time, for now the support will be more of a psychological nature. The key factor in the medium term will remain the dynamics of the main components of the balance of payments. The main problem for the ruble remains the reduction in the share of dollars and euros in the export flow, while in the domestic market the demand for this currency remains high – both from individuals and businesses.
“The first decision of the Russian government is aimed at increasing the efficiency of the mechanism for direct conversion of national currencies of friendly and neutral countries, as well as the formation of direct quotations to the ruble to meet the demand of the Russian economy for settlements in national currency,” recalled Dmitry Osyanin, associate professor of the basic department of Financial Control, Analysis and audit of the Main Control Department of the city of Moscow REU named after. G. V. Plekhanov.
Quotes may change depending on economic conditions and political events.
The participation of foreign banks and brokers from “friendly” countries in foreign exchange trading will help influence the ruble exchange rate, as this will increase trading volume and may lead to more active exchange rate movement. However, to accurately determine the impact, many factors must be taken into account, such as trading volume, currency supply and demand, and economic conditions.
The second measure, “exchange duties” or exchange rate rent, which is planned to be introduced from October 1 to the end of 2024, will not affect all goods, the economist noted. Oil and gas, grain, scrap metals, timber, and engineering products should not be subject to government action.
Thus, the Russian government plans not only to influence the exchange rate of the ruble, but to receive additional revenues to the state budget, thereby contributing to the equalization of domestic and external prices, so that with a weak ruble exchange rate it would be unprofitable to export goods from the country.
“It is worth noting that exchange rate rent for an exporter is his additional income that he receives as a result of changes in the exchange rate. The exporter’s exchange rate rent and the ruble exchange rate have a direct relationship. Exporters, selling their products abroad, receive foreign exchange earnings (usually in US dollars or euros). This revenue is then converted into rubles, which affects the volume of supply of rubles in the domestic market and, accordingly, the ruble exchange rate,” explained Dmitry Osyanin.
If exports increase, then the amount of foreign currency entering the country also increases. This creates additional demand for rubles, as exporters must convert foreign currency earnings into national currency to conduct transactions within Russia. As a result, the demand for rubles will increase and the exchange rate will be able to strengthen, the economist believes.
“The Russian government can use this solution to protect the domestic market from foreign competition, stimulate the production of certain goods within the country, and also to generate additional revenue from exports. However, such actions may lead to a decrease in the competitiveness of domestic goods on the world market and an increase in prices for imported goods,” emphasized Dmitry Osyanin.
What will the ruble exchange rate be?
It was no coincidence that the government, planning to introduce an “exchange duty”, chose the level of 80 rubles. Earlier, German Gref, head of Sberbank, the largest bank in the country, announced a fair exchange rate for the ruble in the current situation – about 80-85 rubles. According to him, these are the calculations of the bank’s economists.
Taking into account Russian exports and imports, current oil prices (about $77 per barrel of the Russian Urals export grade), the dollar exchange rate should be about 80 rubles, said the during the webinar Yuri Popov, currency strategist at SberCIB, the investment division of Sberbank.
However, the dollar will not fall in price to 80 rubles in the near future, says Yuri Popov. Only up to 90 rubles by the end of the year and, most likely, will remain so in 2024.
He named a number of reasons for the weakening of the ruble:
- Fall in turnover of currency trading on the Moscow Exchange. Until February 2022, the main transactions came from foreign players, but these sellers left Russia. Plus, the foreign trade surplus has decreased (more foreign currency goes abroad), so even a small demand for dollars and euros depreciates the ruble much more than before.
- Large outflow of capital, reduction in foreign currency flows into the country. According to the Central Bank, exporters are taking out more ruble loans and are not selling foreign currency on the Moscow Exchange. Therefore the regulator raised the rate three times this year to make loans more expensive. The reason for the fall of the ruble is not the growth of imports, as the authorities say, although this is a negative factor, Popov noted. “We don’t see super-excess growth in imports—imports are now roughly at 2021 levels,” he said.
According to him, in real terms (minus inflation) imports are even lower than before and are still significantly lower than exports.
In the summer, the government allowed foreign companies to sell their assets in Russia and withdraw $1 billion a month in foreign currency from the country. According to Sberbank, about $10 billion was withdrawn from Russia in this way. “This is a lot,” Popov noted. In addition, a number of even Russian companies may unwittingly help foreigners circumvent this restriction by purchasing shares from foreign investors, holders of Russian shares. For example, Lukoil alone can spend about $5 billion for these purposes. The total amount will be $100 billion for all companies planning a buyout, Popov said.
It turns out that with Russian exports, which are not the smallest in the history of Russia, the ruble remains at a new low level for a record long time, Popov noted. According to Sberbank, if the ruble becomes cheaper, then imports are reduced, it becomes unprofitable to buy expensive currency in the Russian Federation and use it to purchase goods abroad that are difficult to sell at a high price in order to make up the exchange rate difference. The bank predicts that exports will soon grow from $35 billion to $40 billion per month due to rising oil prices, and imports will decrease. But the arrival of currency into the country occurs with a delay – since February 2022, this period has increased from the usual one month to 3-4 months. “Exporters are holding the currency,” Popov noted. A year ago in the fall, Russian exporters sold 80-85% of all foreign currency earned abroad, and now it is 60-65%, the expert added.
In the event of a global recession and a subsequent fall in demand for raw materials from Russia, the country’s exports could fall. If new sanctions are added to this, the dollar exchange rate in Russia will rise to 100 rubles in 2024, Sberbank predicts.
“This information is for informational purposes only and does not constitute an individual investment recommendation.”
