Eyes on the oil
Oil remains the determining factor for the ruble, according to analysts surveyed , but the degree of influence the cost of a barrel of Brent by them is estimated in different ways. “The rouble is now almost entirely dependent on oil prices. Factors such as tax payments, financial statements, transactions of major market participants only affect short-term exchange rate,” says chief economist BCS Vladimir Tikhomirov. In the current situation, when the external market for Russia, by and large, remains closed, the oil prices are a determining factor for the ruble, says the Deputy head of the center for economic forecasting of Gazprombank Maxim Petronevich. “Technically, the factor of oil prices is the only significant factor for the average monthly dynamics of the ruble over the past six months,” he says.
Senior strategist at Sberbank CIB Vladimir Pantyushin evaluates the level of correlation between the oil price and the ruble exchange rate in 70-95%. “This relationship is enhanced during periods of low oil prices, accompanied by high volatility in the market. “For example, when in the beginning of the year oil fell below $30, the correlation between ruble exchange rate and oil reached 100%,” reminds the expert.
The beginning of 2016 marked the next stage of the devaluation of the ruble. If on 1 January the dollar was traded at the level of 73.1 per RUB, to the middle of the month, its value rose to 80 rubles. the Historical record was achieved on January 21, when the dollar on the Moscow stock exchange reached RUB 82 and maximum reached 85 rubles. This was preceded by the sharp decline in Chinese stock index and the decline in oil prices: a barrel of Brent in January 2016 fell to $28.2 mm.
But the current correlation between the ruble and the price of a barrel of oil, chief economist of “Renaissance Capital” in Russia and the CIS Oleg Kuzmin estimates about 50%. “At the end of 2014 it was higher and closer to 100%, because for our corporate borrowers closed Western markets. Companies had to pay and long-term debt and loans taken for a shorter period of time,” he says. But in October 2015, the situation changed again: the company has completed the repayment of short-term external debt, leaving only the long-term debts and the dependence of the ruble on the oil price returned to a level of 50%, the expert notes.
A significant impact on the ruble exchange rate has a trade balance of Russia (the difference between exports and imports) and outflows/inflows. “Once the oil price starts to fall, Russia has a shrinking export revenues, which worsens the trade balance condition. A similar situation was observed at the end of 2014,” says Pantyushin.
“The change in the value of a barrel of oil by 10%, or $4, leads to an increase or decrease in foreign exchange earnings of the country at $12-15 billion,” gives the example Petronevich. In this case, while maintaining the same volume of imports (in 2015 $230 billion) change rate of the ruble to the dollar, according to the analyst, may amount to 5-6%. “This fundamental design works extremely well the last six months,” he said. According to his estimates, the change in the value of a barrel of oil by $1 leads to changes in the dollar exchange rate in rubles 70 kopecks.
Significant payments on the foreign debt have become one of the causes of the devaluation of the ruble in December 2014, says Tikhomirov. But now, according to him, the impact of this factor is not so great, because the schedule of upcoming payments smooth and the companies do not have problems with servicing loans in foreign currency.
Maxim Petronevich recalls that in 2014-2015 the companies had to repay short-term external debt, which, in normal circumstances refinances. “Some of the participants bought the currency for the future to ensure the repayment of external debts in the face of uncertainty and the closed foreign market,” notes the economist. According to his estimates, now pay the external debt decreased by 3-4 times compared with the peak values in the fourth quarter of 2014. “In conditions when monitoring the movement of currencies and dollar revenues increased, while corporate earnings fell, the other an outflow currency also dropped to the lowest levels since 2003,” says Petronevich.
According to the Bank of Russia, in 2015, the external debt of Russia decreased by 14% from $599 billion to 515,3 billion. At the beginning of 2014 it amounted to $728.8 mln billion. The external debt of companies in 2015 fell by $35 billion and amounted on January 1, 2016 $340,6 billion this year, Russian companies will have to pay $50-55 billion foreign debt.
Net capital exports by the private sector in 2015 amounted to us $56.9 billion, from 153 billion in 2014.
“According to our estimates, the debt repayments will take place quietly enough. Export earnings and current account surplus, of course, will decrease at lower oil prices: in the baseline forecast to $40 billion in 2016 (or 4.1% of GDP). In the future they will gradually increase to about $50 billion in 2018 (or 4.1% of GDP). But we will not see high outflows. In the baseline scenario it will be about $40 billion in 2016, and then only slightly increase,” — said on Friday, 18 March, the head of the Central Bank Elvira Nabiullina.
“In our forecasts for the ruble exchange rate, we in addition to payments under external debt and capital flight accounted for and amount of currency at banks and companies, as well as their ability to refinance debt. Also there is a factor associated with the cost of servicing the interest on foreign debts”, — says the analyst of Raiffeisenbank Denis Poryvai. According to him, in 2015 banks and companies spent on interest payments on borrowings, $32 billion (net of interest earned on assets placed in foreign banks), with total debt Russia’s foreign debt fell $84 billion.
“At the same time the outflow of capital not related to repayment of foreign loans, was not: on the contrary, was an inflow of $23 billion (at the expense of reduction of foreign currency savings companies and banks), — the analyst notes. — That is, money started to come back into the country, and this factor helps to support the ruble in the short periods of low oil prices”.
Political events affect the behavior of non-residents: capital flows from them depending on the perception of foreign investors of political events, says Kuzmin. For example, according to him, when in the fall of 2015 reports surfaced that Russia began to negotiate with the West over the conflict in Syria, foreign investors actively bought Russian stocks and bonds were observed and the strengthening of the ruble. “A positive band for the ruble ended with a shot down the plane,” recalls the expert.
The last reaction of the currency market on geopolitics was the strengthening of the ruble on the news about the withdrawal of Russian troops from Syria, said Pantyushin. He believes that in the near future the most significant geopolitical factor for the ruble will remain the situation in Ukraine, in particular the investor expectation that the Minsk agreement will be executed and this will be followed by an easing of sanctions. Vladimir Tikhomirov considers that the removal or mitigation of sanctions can have a significant impact on the value of the ruble and it will increase by 5-10%.
Policy of the Central Bank
“Market expectations regarding the reduction of interest rates can affect investor behaviour. For example, when last year the Central Bank began to cut rates, we began the influx of non-residents who purchased bonds and sell the currency, thereby supporting the ruble,” — said Pantyushin. According to him, in recent years there has also been a interest of non-residents to ruble assets in connection with expectations of reduction of the key rate. “The interest rates on the bonds of Russia and now looks quite attractive, including the high coupon, plus the expected increase in the cost of these assets”, — said the expert.
On Friday, March 18, the Bank of Russia at the meeting of the Board of Directors maintained the key rate at 11% per annum. The Central Bank has set such a bet, on 31 July 2015 and last four times I left it unchanged. At the last meeting in January, the Bank of Russia indicated that it “does not exclude the tightening of monetary policy” in case of aggravation of inflation risks. In prices of bonds were called for lowering rates by 100-150 basis points, says chief economist for Russia and CIS at ING Commercial Banking Dmitry Polevoy. Therefore, the surveyed economists believed that the decision of the Central Bank to leave rate unchanged, but to announce the easing of monetary policy in a press release will lead to fluctuations in the foreign exchange market.
Buy citizens of cash dollars and euros has almost no effect now on the ruble. According to Maxim Petronevich, fluctuations in oil prices and exchange rates while insufficient to cause excessive demand from the population, as it occurred at the end of 2014. “Since the beginning of 2015 we see no serious demand for foreign currency from individuals,” confirms Vladimir Pantyushin. In 2014, elevated demand for foreign currency from the citizens was in March, when there was the first wave of panic, then the increased demand observed in July and in December, when the ruble experienced the peak of the devaluation. “After that, the volume of purchases and sales were insignificant population”, — said the expert.
According to the Bank of Russia, in 2015, the Russians bought currency totaling about $36 billion, which is almost two times less than in 2014. Sale of foreign currency by the population of Russia for the year decreased by 20%. Thus the net demand of citizens for foreign currency (if the calculation takes into account not only newly purchased, but taken from a previously opened Bank accounts currency) in December 2015 appeared four times lower than at the end of 2014, and eight times lower than in December 2013. “Unlike the situation in recent years the situation, when in the last month, there has been a significant increase in net demand for cash foreign currency in December 2015 compared with the previous month, net demand decreased by 20%”, — noted in the review of the Central Bank.
According to statistics published by the Ministry of economic development, in 2015 the share of incomes of Russians directed on purchase of currency, decreased from 5.8 to 4.2% in 2014.
According to Pantushin, relatively predictable factor is the policy of the Bank of Russia concerning currency, provided through REPO transactions. “The regulator does not seek to drastically reduce the volumes of the provided currency, still more reducing the time of its provision. Given the fact that this is done very smoothly, the Central Bank’s measures have a stabilising influence on the currency market,” he said.
Kuzmin refutes the myth that the ruble exchange rate is adjusted depending on the budget deficit. “It is naive to assume that the state can plan the ruble on the basis of some mythical cost of a barrel of 3,2 thousand and 3,6 thousand rbl.” — he said. According to him, if the government start to act, it will finally undermine the credibility of the Russian currency and will lead to a sharp devaluation. “Besides, if you try to solve the problem with the revenue side of the budget due to the devaluation of the ruble, it will cause a rise in prices, which means the government will have to increase social spending. Finally, excessive weakening of the ruble, caused by action of objective factors, have a negative impact on the economy, and therefore will fall the collection of non-oil taxes, which will negatively affect the revenues of the state budget,” concludes the economist.