“The rate is no longer comfortable for the budget.” Why is the ruble growing and who benefits from it?

The ongoing strengthening of the ruble is ahead of all conceivable forecasts - on Friday, the dollar fell to 57 rubles - at least since March 2018, and the euro for the first time since June 2015 was approaching 59 rubles. Why is the ruble rising, how long will it continue and what does this mean for the Russian economy?

What's happening

The ruble has been continuously growing since March 10, when the value of the dollar on the stock exchange peaked at 120 rubles. Since then, the ruble has doubled in value. The Russian currency shows this year the best dynamics among all the world ones, Vladimir Putin boasted last week at a meeting on economic issues.

Growth occurs without any rebounds, notes BCS Express. Today, within one session, the dollar fell by 7.8%. In a normal situation, this is more than the average volatility of the ruble for the quarter, analysts write. However, by Friday evening the exchange rate corrected to 60.2 rubles/$ and 63 rubles/€.

Why the ruble is growing

Since the beginning of April, Western analysts have called the ruble "the currency of the Potemkin village" and have written dozens of articles about the lack of economic grounds for strengthening the ruble. The main reason for what is happening with the ruble is the growing isolation of the Russian economy.

The reasons for the strengthening of the ruble were clear from the very beginning - this is the rapid growth of exports in monetary terms against the backdrop of a collapse in imports and severe restrictions on the purchase of foreign currency. Exporters from the end of February are obliged to sell 80% of foreign exchange earnings, and prices for raw materials are rising. Russia's current account surplus in April was the highest ever.

There are no reliable figures on the dynamics of exports and imports for March-April - since April, the Federal Customs Service has ceased to publish data on foreign trade. But last week, The Economist compiled statistics from Russia's eight major foreign trade partners (the largest EU countries, China, the US, Japan and South Korea), which account for almost 60% of Russian imports and more than 40% of exports. For these countries, imports in value terms fell by 44%, while exports grew by 8%.

" . Maxim Oreshkin, Vladimir Putin's assistant in economics, offered his own wording explaining the strengthening of the ruble on Thursday: "Neither the dollar nor the euro in the amount in which they come is needed by the country now, and the country cannot do anything with them

Why did the ruble jump so sharply on Friday

There are no separate reasons for such a rapid growth of the ruble, says Sofia Donets, chief economist for Russia and the CIS at Renaissance Capital. The main reason for the strengthening of the Russian currency is the redistribution of trade flows and the reduction of imports. “In our reality, plus or minus 2-4 rubles at the exchange rate during the day, this is a normal, already familiar reality. Nothing extraordinary happened,” she explains.

Natalia Orlova, chief economist at Alfa-Bank, believes that Friday's strengthening of the ruble is due to the fact that exporters increased sales of revenue before the tax period. “May 25 in Russia is a day of large tax payments, several taxes are paid at the same time . With a high probability, the increase in sales of export earnings is just due to the approach of this date, ”the expert notes.

Donets notes that this year the strengthening of the ruble began earlier than usual due to the approaching tax period, so on May 25 and in the following days it may not be so significant.

Foreign media also attribute the growth of the ruble to the fact that more and more gas importers are ready to pay for it on Russian terms, through accounts in Gazprombank. This is pointed out by Bloomberg and Reuters . “Capital controls, the collapse of imports and a sharp rise in energy prices have made the ruble about 20% stronger” than before the “special operation” in Ukraine, Bloomberg states.

What's next

It is difficult to wait for a course reversal in the coming week - you need to watch the news about the dynamics of imports, about the development of trade relations, Orlova believes. “It is also very important: next week there will be a decision on Russia's ability to pay its foreign debts. This can also determine the mood and dynamics of the exchange rate,” she adds. On May 25, the US Treasury Department's general license, which allowed Western creditors to receive payments from the Russian Treasury Department on foreign-currency debt, expires. Bloomberg wrote earlier this week that it would not be renewed. In this case, Russia faces an official default.

According to Donets, by the end of May the dollar will fluctuate around 60 rubles or slightly below this level. In the coming days, we should expect strong exchange rate volatility, some strengthening is possible on tax days.

BCS Express forecasts the dollar at 75 rubles by the end of the year as imports partially recover and market interest rates decrease.

The strengthening of the ruble may stop in the coming weeks, said Yury Popov, FX and interest rate strategist at SberCIB Investment Research, quoted by Frank RG. “Given the strengthening of the ruble, the demand for currency from individuals may rise sharply, which will put some pressure on the ruble. It should be noted that in March, against the backdrop of a sharp weakening of the ruble, individuals sold foreign currency for 570 billion rubles in net terms, and in June the demand for it can be comparable,” he explained.

Who benefits from it

Other things being equal, a weak ruble is more profitable for the Russian budget, because it receives most of its income in foreign currency, and spends money mainly in rubles. From the point of view of the budget, the current exchange rate is already uncomfortable, BCS Express notes. The budget for 2022 was drawn up based on the exchange rate of 72.1 rubles per dollar. BCS Express expects the authorities to take more active steps to loosen capital controls in order to return the ruble to the "equilibrium level". This process is already underway, but cosmetic indulgences are being made that do not even lead to a slowdown in the strengthening of the ruble. weakly to the permission of the Central Bank to make currency transfers in the amount of up to $50,000 instead of $10,000 Earlier, the ruble reacted .

For individuals, the exchange rate of the dollar remains largely virtual. Due to the restrictions of the Central Bank, all currency purchased after March 9 on the stock exchange or in bank applications can be cashed out only in rubles. The only way to get cash currency is to exchange rubles for it at the bank’s cash desk, but in this case the exchange rate will already be far from the exchange rate: for example, in Sberbank on March 19, the dollar was sold at 78.49 rubles - 16 rubles more than on the exchange. And this is if you're lucky - not all branches have the currency, and back in mid-April they sold it only to premium customers.

“In our opinion, while the purchase of cash dollars and euros remains impossible, one should not expect a significant impact from these measures on the movement of the exchange rate. The main thing in the current conditions is the restoration of imports. And it seems that the authorities are ready to take a break for the time being, remaining in the conditions of a strong enough ruble to launch the mechanism for increasing imports,” write BCS Express analysts.

According to Donets, the set of tools that can now be used to stop the growth of the ruble is limited, and it is not easy to apply these tools. “The strengthening can be stopped either by a decrease in exports or a sharp increase in imports. The growth of imports will occur, among other things, because the ruble is strengthening, but it is unlikely to be sharp enough to affect the exchange rate,” she says.

With an average annual oil price in the region of $80 per barrel and a 20% decrease in export volumes (such parameters are included in the scenario of the Central Bank and the Ministry of Economic Development), the budget deficit will be near zero at an average annual dollar exchange rate of 85 rubles, and at a rate of 60, the deficit will be up to 3 trillion rubles, counts Donets. By now, the average annual dollar exchange rate is still over 80. “But the amount of 3 trillion is rather big, but it is covered. For one year, this is history that can be covered by accumulated reserves. More than a year on the horizon is already a little expensive,” Donets explains.

A positive effect of the ruble's strengthening could be an opportunity for an aggressive easing of the Central Bank's monetary policy, which, among other things, will contribute to the growth of imports and will stimulate the necessary process of import substitution at lower lending rates.

Among the companies that benefit from a strong ruble, BCS Express singles out retailers (OK, Magnit, M.Video, Lenta, Detsky Mir, X5 Retail), developers (Etalon, LSR, PIK, Samolet) and Yandex. The strong ruble is not profitable, first of all, for the oil and gas sector, metallurgists and fertilizer producers.

Find out more

Last week, Bloomberg named the ruble the best currency in 2022 in terms of strengthening against the dollar. But he noted that the strengthening is due to tight currency control and does not reflect the real situation in the Russian economy. about the same In April, the FT wrote . What is wrong with the strengthening of the ruble and why it is no longer a freely convertible currency, read here .