“This is panic”: why did the ruble fall below 66 per dollar and 77 rubles per euro?

At the opening of trading on the Moscow Exchange on Thursday, the dollar and euro rose by more than a ruble, exceeding 66 and 77 rubles, respectively. According to experts interviewed by The Bell, the reason is the sanctions in the Skripal case, which the market learned about the day before, and this news could become the main driver of the weakening of the Russian currency on Wednesday as well. Analysts say it is difficult to predict the further movement of the market, since emotions have taken over the market, but economists expect the ruble to win back losses.

What happened?

• At the opening of trading on the Moscow Exchange on Thursday, the dollar rose above 66 rubles, and the euro - above 77 rubles. Later, however, the Russian currency won back part of the losses and at 12:00 they gave 65.95 rubles for the dollar, and 76.4 rubles for the euro. However, if compared with the beginning of the week, the ruble fell by almost 3.5% against the dollar.
• The decline is also observed in the stock market. The RTS index dropped by 10:15 by 3.21%, to 1078 points. The MICEX index fell almost 1% to 2269 points. Sberbank shares fell 5% (both common and preferred), Aeroflot shares fell 8%. Against this background, papers of commodity companies look good: the price of shares of Gazprom and Rosneft has changed little since yesterday's close. Only Alrosa shares fell by almost 3%.
• Russian ruble and foreign currency government bonds also fell sharply in price for the second day in a row. In particular, the interest rates of a number of OFZ issues in the course of trading on Thursday went into the range of 8.2-8.3% per annum.

What will happen to the ruble?

• Currency fluctuations with such an amplitude show that there is a panic in the market , Timur Nigmatullin, an analyst at Otkritie Broker, believes. Decisions are made irrationally, based on the most negative scenarios - a ban on dollar settlements in Russian state-owned banks, disconnection from Visa, restrictions on trade, and so on, he is sure. It is difficult to predict the duration of the fall, because such a market panic is not amenable to reasonable arguments, investors make decisions that are not related to rational planning. However, practice, including the story of the collapse of the ruble in 2014, shows that in the absence of a new negative scenario, the panic does not last long , it is gradually declining, the analyst continues. “Two key time points that will decide the fate of the currency are August 22 [the first sanctions for the poisoning of the Skripals should be introduced] and the November elections to the Congress,” Nigmatullin said. He expects that after the election, the escalation around the sanctions, which have become a bargaining chip in the US domestic political confrontation, will subside.
• In fact, investors reacted to the sanctions for Skripal's poisoning yesterday , notes Natalia Orlova, chief economist at Alfa Bank. Apparently, someone had information about the upcoming restrictions, and it spread throughout the market , says Orlova. In her opinion, on Thursday the currency fluctuations are not so nervous, the reaction is moderate: "It could be worse, the market seems to be stabilizing." The new sanctions, Orlova says, are causing more political damage: the market did not expect the US to put Russia on a par with Iran. Based on the experience of the April collapse of the ruble, Orlova predicts that the market will win back the negative news in a few days . In the future, currency fluctuations will depend on the news background and the situation on emerging markets in general, and the background on emerging markets will put more pressure on the ruble, the economist is sure.
• “The current behavior of the market is a reaction to the sanctions announced by the State Department for the poisoning of Skripal, the bill of Congress won back the market yesterday,” said Kirill Tremasov, director of the analytical department at Loko-Invest. According to the analyst, the reaction to the sanctions announced the day before has already been won back and the markets are unlikely to continue to panic. Tremasov believes that sanctions are an instrument of internal political confrontation between the president and Congress: "Before the elections to Congress, everyone wanted blood." Now Trump is trying to seize the initiative, and this is good news for Russia, because the congressmen's proposals seem more unpleasant . If Trump wins time and delays the adoption of the bill by Congress until the election, the alignment for Russia will change, Tremasov is sure.
• However, it cannot be ruled out that the Russian currency may weaken further in the near future. “After the dollar / ruble exits the four-month consolidation range, from a technical point of view, the likelihood of movement towards the mark of 67 rubles per dollar increases ,” believes . Mikhail Poddubsky from Promsvyazbank

Context

• The Trump administration announced yesterday that it was imposing new sanctions on Russia after it found that Moscow had used chemical weapons against ex-GRU Colonel Sergei Skripal living in the UK. Washington believes that Moscow violated the 1991 law on the control and prohibition of chemical and biological weapons. This document provides for two rounds of sanctions. First, trade and financial restrictions are imposed, for example, on the export of civilian dual-use electronics to Russia. If within three months the violating country does not fulfill its requirements (cessation of the use of chemical weapons and the provision of appropriate guarantees, the admission of international inspections), the president, after consultation with Congress, must impose additional sanctions. This must be at least three of the six measures listed in the law: 1) the US vote against the provision of any loans to the country by international banks; 2) a ban on lending to the government of the country by US banks; 3) a ban on the export of any American goods to the country; 4) a ban on imports from the country into the United States of any goods other than food; 5) downgrading or suspension of diplomatic relations; 6) a ban on air transportation by airlines controlled by the government of the country (that is, Aeroflot may suffer). Read more - here .
• Another package of sanctions is considered by the US Congress. The publication on the eve of the full text of this bill caused the strongest shock on the Russian market since the April sanctions. At the closing of the Moscow Exchange, the dollar for the first time in almost two years cost more than 65 rubles, the euro - more than 75, Sberbank - fell in price to the April minimum. You can read more about how the sanctions will affect the clients of Russian banks here .

Liana Faizova