Grigory Gritsenko: Currency excitement

Grigory Gritsenko Caricature Dreamstime

The continuous fall in the ruble course, which takes place for the last three months, is a direct consequence of sanctions in the financial sector introduced by the EU countries, as well as the USA and Canada. This type of sanctions is mainly reduced to prohibit Russian legal entities to place their securities and receive loans from financial institutions of these countries. For Russian companies and banks, this means that at the moment when they have to extinguish previously assumed obligations, they cannot assume new obligations. That is, they cannot refinance debt obligations with the deadlines suitable by the end.

In principle, the use of this tool could even be welcomed, since Russian companies and banks of Zakred are beyond measure, the volume (and dynamics) of their debt obligations in no way correspond to the real state of the Russian economy. Therefore, if Russian borrowers reduce their external debt, it will only benefit them. However, a forced decrease in the debt load, as it is now, does not happen at the most successful moment and can cause a number of unpleasant excesses. A sharp fall in the ruble course is just such an excess.

If you look at the schedule of external debt to Russian companies and banks in the next twelve months, then it looks as follows.

$ billion.	Apr.	May	June	July	August	Saint.	Oct.	November.	Dec.	Jan.	Fevr.	March
Basic duty	18.2	10.3	15.4	10.9	7.4	19.1	7.3	8.6	31.9	5.4	15.4	10.8
interest	2.5	1.9	2.5	2.1	2.3	2.9	2.3	1.7	2.7	1.5	2.0	1.7
Total	20.7	12.2	17.9	13.0	9.7	22.0	9.6	10.3	34.6	6.9	17.4	12.5

(April-December 2014 and January-March 2015)

For the period from April 2014 to April 2015, Russian residents must pay foreign creditors about $ 171 billion, which, of course, sharply increases the demand for currency. And the increase in demand, in turn, causes appropriate coursework, since the total amount of payments is very large, and the amounts of their amounts are distributed extremely unevenly in time.

If you look at the chart of the ruble course over the past six months, it is clearly visible that it quite adequately reflects the upcoming dynamics of debt payments, as well as the possibility of their refinancing. So, the growth of the course of the Russian currency began from the second week of May and lasted until the end of June, when the payments on debts were small, and financial sanctions have not yet operated. And only later, when the payments began to increase, and at the same time it became clear that it would not be possible to refinance debts, the ruble exchange rate began to fall again.

It should be noted that in addition to the need to extinguish debts, additional demand for currency is given to the periodically emerging desire of portfolio investors-non-residents to get rid of Russian assets, primarily from shares and bonds with distant repayment terms, and transfer their value into assets of other countries. And although this market segment cannot have a small and serious influence on the general situation, but sometimes, if the exit from assets begins during the period of mass repayment of debts, as is happening in recent weeks, the situation in the foreign exchange market can worsen greatly.

True, now we no longer have to talk about some wave-like dynamics of the ruble course. Understanding perfectly what the prospect of them awaits, the companies and banks are stored for the future, so the restoration of the course that could be expected in October-November due to the low amount of payments will hardly occur-the “shock” December payment of $ 35 billion. There is no hope of improving the situation, even a short-term one.

In addition, in December we have a peak of seasonal demand for currency, when Russian citizens who are leaving for Christmas holidays abroad begin to spend their currency savings. True, this year, just because of the devaluation, they can be much smaller, but who knows.

Since strong fluctuations in the course of the national currency almost always lead to panic moods among economic agents, one could expect some preventive measures from the Russian monetary authorities. For example, the Central Bank of the Russian Federation and/or the Ministry of Finance could provide the largest debtors with currency loans at the expense of international reserves so that they would not enter the foreign exchange market and would not be overtaken on it of the exciting demand for currency. And although the Central Bank took some steps in this direction, organizing surgery operations for commercial banks, so far, apparently, this idea has not yet been popular.

As it can be assumed, the weak reaction of the economic authorities to the strong excitation of the currency market is caused by the fact that the current course situation, although it is extremely tense, fully meets their ideas about how and with the help of which tools the Russian economy should develop.

So, since banks and companies need a currency to repay debts, they buy it in the open market, which leads to an increase in the course; the growth of the foreign currency course leads to an increase in the cost of imports and a decrease in its volume; After a decrease in imports, additional amounts of currency are released that Russian debtors can buy to repay the next batch of external debt obligations. After this repayment, the course goes up, and the cycle is repeated again, until the most significant part of the debts is repaid.

At the same time, it should be noted, currency reserves are not affected, but as for the state budget revenues, they grow, as in yeast. Accordingly, there is no need for borrowing to cover the budget deficit; Moreover, the deficiency miraculously turns into a surplus. Well, as for Russian manufacturers, they begin to feel just great, because thanks to devaluation (and sanctions), the domestic market is cleared of competitors.

Thus, despite external nervousness, everything looks more or less safe. However, two difficult questions still remain. Firstly, when borrowers buy a currency to repay debts at an overstated course, they lose their capital. Who will compensate them for it? Secondly, now there is a drop in oil price, and with it the volume of export currency revenue is falling; Will Russian companies and banks have time to repay external loans before its size decreases by a significant value?

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