Inflation imports: Will the strengthening ruble curb price growth?
The dollar fell in price to almost Br95 on the interbank market. Quotes of the yuan and euro followed in the same direction on the Moscow Exchange. The ruble is strengthening due to high rates in the economy, good export figures and reduced activity of importers. The most intriguing question in this regard is: how can a strong ruble affect inflation? "Izvestia" found out what will happen to the rise in prices in our country after the quotes of major currencies have fallen.
What is happening to the ruble
Since the beginning of the year, the Russian currency has strengthened against the dollar by almost 18%. This is an extremely high rate of growth: the last time such a thing was observed in 2022. Against the yuan, the growth was slightly less impressive, but also very noticeable. The reasons were several.
As noted by Natalia Pyrieva, an analyst of "Tsifra Broker", one of them is high interest rates (by the way, the dependence on inflation is inverse here) and, as a consequence, bond yields.
- This, in turn, fuels investors' interest in buying bonds on the Russian market with borrowed funds in low-yielding currencies, such as the Chinese yuan. In other words, the ruble is supported by the operations of "caretrade", when investors borrow yuan, sell it for rubles and buy, for example, OFZ," the expert explains.
According to her, the strengthening of the ruble against hard currencies occurs also through cross rates with the Chinese yuan.
Another favorable factor is the recovery of oil quotations in recent days, the expert says. According to her, this may contribute to the inflow of foreign currency proceeds from hydrocarbon exports.
Analyst of FG "Finam" Alexander Potavin drew attention to the fact that the ruble is now supported by political factors.
- After Donald Trump came to the White House, attempts to establish peace talks between Moscow and Kiev have intensified. This geopolitical factor may significantly support the ruble exchange rate in 2025," said the expert. According to him, the stoppage of hostilities may lead to the subsequent removal of external sanctions, and this will improve the situation with foreign trade.
Finally, there is a seasonal factor, which consists in the traditional reduction of importers' activity in the first quarter of the year. This also reduces the demand for currency.
- The combination of all factors contributes to a moderate strengthening of the ruble, which may continue throughout the first quarter of 2025," summarized Pyryeva. The economist admits that the rate of the Chinese currency may decline and test the mark of 13 rubles per yuan, which corresponds to the rate of the U.S. currency at just under 95 rubles per dollar, - summarized Pirieva.
Car prices - down
What does the strengthening of the ruble mean for inflation? The debate about how important the exchange rate is for prices in Russia has intensified significantly in recent years. Inflation has become even more of a problem than the ruble itself, because fewer people are traveling abroad now, but everyone is feeling the rise in prices.
Chairman of the Bank of Russia Elvira Nabiullina has repeatedly said that currency fluctuations should not bother people at all. However, in recent years, the Central Bank has recognized the dependence of prices on changes in the exchange rate.
February 2025 data shows that inflation in the country has slowed slightly from its peak at the end of last year. Weekly price growth has fallen below 0.2%, although the current rate is considered high by historical standards. The fall in inflation has coincided with the current stronger ruble.
Ilya Fedorov, chief economist at BKS Investment World, believes that the correlation between the exchange rate and prices can hardly be questioned. According to him, it can be clearly seen now, if we look at the statistics in a larger approximation.
- The strengthening of the domestic currency, which has been observed since the second half of January, has led to a decrease in ruble prices for cars. This is evident from the weekly inflation data. In general, importers are pricing in a weaker exchange rate. Usually, when the exchange rate strengthens, the price tag does not change, but discounts appear," he explains. Thus, Rosstat will record a minimal change in prices with the strengthening of the exchange rate in the near future, and consumers may feel the effect of the strengthening of the ruble, summarizes the expert.
It's too early for conclusions
However, Alexander Potavin believes that so far the effect of the ruble strengthening is not too noticeable and it is too early to draw conclusions.
- A slight slowdown in inflation in Russia in recent weeks is, rather, a consequence of tight monetary policy of the Central Bank, which keeps the key rate at 21% with official inflation in the country about 10%. This, on the one hand, reduces the demand for foreign currency to expand imports, slowing down lending, and on the other hand, locks the excess ruble money supply in deposit accounts in banks at high rates," the economist explained.
According to him, in such a situation, the Bank of Russia sees no signs of a sustainable slowdown in inflation. The ruble can affect the price growth only if the strengthening of the national currency will last at least three or four months.
Anton Tabakh, chief economist of the Expert RA rating agency, believes that in the future a strong ruble may slow down price growth.
- There is a connection between the phenomena, although it does not make sense to consider it on such short intervals. The interbank market in the short term reacts strongly to foreign trade plots and prices, or the same tax payments," he explained.
Prices for imported products reflect the exchange rate for a quarter. At the same time, the ruble appreciation is slower and weaker than the weakening: the greed of importers also plays its role. According to the economist, in general, the exchange rate is more volatile now than in 2022.
- It is unlikely that the slowdown in inflation after the holidays is related to the exchange rate. But if the trend is the same, a stronger ruble will start to affect prices by the second quarter of 2025, - Anton Tabakh is sure.
Note that inflation is the main indicator on the basis of which the Bank of Russia decides to change the key rate. If the dollar and yuan exchange rates fall, a more modest rise in prices may lead to the rate being lowered. So far, according to experts' estimates, it should average around 20% for 2025.
But this, in turn, will already lead to a weakening of the ruble, because at lower rates there will be fewer people willing to keep their funds in ruble instruments. In any case, just a strong ruble will not be enough to completely defeat inflation and bring it back to the 4% target.
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