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- Swinging at the ruble: what will happen to the Russian currency in the second quarter
Swinging at the ruble: what will happen to the Russian currency in the second quarter
The war in Iran has so far had a moderate impact on the ruble exchange rate. However, the rise in oil prices in recent weeks may lead to a strengthening of the Russian currency due to a sharp influx of foreign exchange earnings. And the suspension of the budget rule until July 1 may cause increased volatility in the foreign exchange market. About what factors will determine the ruble exchange rate in the second quarter and how much the domestic currency will cost against the yuan and the dollar by the end of the half—year, see the Izvestia article.
A stable start to the year
The first quarter was very stable for the Russian currency, despite all the external shocks, as well as changes directly in the Russian economy. The exchange rate fluctuated between 75 and 83 rubles per dollar on the interbank market, eventually settling closer to the lower limit of this range. Less than 10% is a very smooth change for an entire quarter. At the same time, it was the strengthening of the dollar that played a key role in this process, not the weakness of the ruble.
As for the yuan, the Chinese currency has added less than 4% in three months. Thus, in general, the ruble has remained stable, despite all the turbulence, which has been a common story in recent years. This, of course, does not suit all players in the economy. Industry representatives have repeatedly expressed a desire for the ruble to weaken to 95-100 per dollar. This is due to the fact that the combination of high rates and a strong ruble negatively affects industrial production in the country, especially export-oriented. Nevertheless, no attempts have been made to intervene to lower the Russian currency so far: the Central Bank has repeatedly stressed that it targets inflation rather than the ruble exchange rate, especially since these two tasks may be mutually exclusive.
Where will the course move in the near future? There are several main trends, including those related to current geopolitical events, which may allow us to somewhat predict the development of the situation in the next three months.
Currency shaft
First, we need to keep in mind the price of oil, which is currently breaking through $110 per barrel. In April, higher currency export flows will gradually begin to flow into the country due to the rise in the cost of various commodities following the outbreak of conflict in the Middle East. The increase in foreign exchange inflows to the Russian Federation compensates for the volume of receipts from the Ministry of Finance and the Bank of Russia, which fell due to the suspension of operations under the budget rule, which led to a sharp shortage of liquidity in March and an impulse to weaken the ruble.
The volume of foreign exchange earnings expected in the near future is unlikely to be balanced by the demand for it in the economy, since it is not worth counting on a surge in imports.
— As part of the baseline scenario, we envisage the end of the acute phase of the conflict in the next few months, which implies the continued significant inflow of foreign currency into the country in May-June. Nevertheless, in the event of a decrease in the degree of tension in the Persian Gulf and a narrowing of the premium to Russian energy resources and/or an increase in the number of attacks on Russian infrastructure, which will limit the ability to increase supplies, the ruble support factor may be reduced," said Natalia Pyrieva, head of the analytical department at Cifra Broker.
According to Finam analyst Alexander Potavin, it is possible that in April the process of strengthening the ruble will not look too obvious, since the main increase in export revenue will reach the domestic market only starting in May.
— By the way, at the end of May, the Ministry of Finance of the Russian Federation extinguishes the next tranche of Eurobonds, and the ruble exchange rate often strengthens by this date, — the expert adds.
In addition, at the end of March, the Ministry of Finance announced the suspension of the budget rule until July 1 in order to "increase the sustainability of public finances and strengthen the country's financial system." Thus, currency purchases from the National Welfare Fund (NWF) are not planned for the next three months (from early April to the end of June), so all excess profits from increased oil and gas prices will be directed to the budget to reduce the deficit.
Thirdly, there is an unknown with a key rate. Everything will depend on the inflation situation in the country. If high inflation, which will hit most countries of the world due to oil shortages (but not only) and then spill over into Russia, becomes a serious phenomenon in our country, then we should hardly expect further rate cuts. And this is obviously a bullish factor for the ruble. If this does not happen, then the rhythmic reduction of rates will almost certainly continue, which means that an important element of support for the Russian currency will disappear.
The forecast is even
In general, one should hardly expect a serious weakening of the exchange rate, unless some special force majeure occurs. On the other hand, there are currently no prospects for a new strengthening of the domestic currency above 75 rubles per dollar and 11 per yuan. The analysts interviewed by Izvestia also speak about the same range.
— We expect that in the second quarter, the ruble will trade near 80 rubles per US dollar, 90 rubles per euro, 11.5 rubles per yuan. At the same time, we do not exclude sharp spikes in volatility in both directions, depending on the news background," says Natalia Pyrieva.
Meanwhile, Pavel Biryukov, chief economist at Gazprombank, believes that by the end of the second quarter, the ruble may return to the range of 10.8–11.5/yuan (76-80/dollar). However, the scale of the strengthening will largely depend on the trajectory of export earnings. Against this background, seasonal fluctuations in imports may form only a slight pressure on the ruble in May.
— In any case, the rise in oil prices by 30-40% due to the Middle East conflict should strengthen the Russian ruble. In the perspective of April-June, we expect that the dollar exchange rate will trade in the range of 77-84 rubles, the euro exchange rate will be 89-95 rubles, and the yuan exchange rate will be 11.0—11.7 rubles," Alexander Potavin quotes the forecast.
In turn, Alexander Bakhtin, an investment strategist at Garda Capital, does not rule out that the ruble may strengthen slightly against major currencies closer to the summer. The dollar may temporarily settle in the area of 75-80, the euro — 88-92, and the yuan — 11-11.5.
— But in the summer, the rate factor will begin to have a more noticeable effect on the position of the national currency. We will also take into account the summer seasonality — the currency is being bought more actively for vacations, and import flows may also gradually recover. By the end of the half–year, the dollar may return to the value of 82-83 rubles, the euro to 94-96 rubles, and the yuan to 12 rubles," the expert summarizes.
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