Risk number one: economists have called the main threat to the ruble


What threatens the ruble?

“The failure relatively quickly to provide adequate fiscal adjustment may lead to increased volatility in financial and currency markets, new shocks on economic growth”, — said a week ago on April international academic conference at the Higher school of economy first Deputy Chairman of the Central Bank Ksenia Yudaeva. Most of the respondents economists — 19 of 31 — are confident that the fiscal risk of the Central Bank now regards as the main one.

An unbalanced budget is one of the major risks for the ruble exchange rate, and for inflation and for economic growth, enumerates economist for Russia at BNP Paribas Eldar Vakhitov. “In the absence of clear information about the taken measures by which the government is going to reduce the budget deficit, is subject to speculation that other things being equal it would not object to the weakening of the ruble, because this would increase the ruble budget revenues,” he explains. Measures to reduce costs are also not accepted, therefore the risks of the second indexation of pensions and increase of tariffs above planned levels, which again leads to higher inflation, continues Vakhitov.

The growth of the budget deficit and the lack of sources of replenishment of a profitable part lead to higher debt servicing costs and negative rating actions, adds chief analyst at Nordea Bank Denis Davydov. “It undermines not only the national currency but also the economy as a whole,” he says.

Problems with the budget in any case will affect the ruble, says the managing Director of Arbat Capital Alexey Golubovich: “the Deficit needs to be financed, for this it is necessary to spend reserves, or increase the national debt by an external or internal market, or to monetize the debt via the printing press. All three scenarios, other things being equal, negative for the ruble”. In order not to reduce the budget, the government will need to weaken the ruble by 5-10%, the expert believes.

According to the consensus forecast , mid-year (end of first half) the dollar will be worth 67,9 rubles, while the price of Brent crude to $41.75 a barrel. By the end of the year, economists expect the dollar for 67,1 RUB in the oil price to $47,6 per barrel.

Will there be issue?

Given the state of the economy and excess liquidity in the financial system, the government makes sense more to take less and to spend the reserve funds, says a leading expert of the center for economic forecasting of Gazprombank Yegor Susin. This would stretch the use of the reserves for a longer period, and would simplify for the Bank of Russia’s conduct of monetary policy in conditions of excess ruble liquidity, he explains: “we Need a little less typing and a little more to take, but the strict adherence to the programme of deficit reduction in the future three to five years.”

The government, using the Reserve Fund, forcing the Bank to issue rubles in favor of the Ministry of Finance in exchange for foreign currency. This issue is controlled and secured by the assets of the Ministry of Finance, but it complicates the job of the Central Bank to lower inflation, says Susin.

Unsecured on the issue of the Bank of Russia will not go, believe all the economists and analysts who participated in the survey . “Monetary emission to cover the budget deficit or directly in the economy, contrary to the policy of the Central Bank and leads to the acceleration of inflation and the weakening of the ruble,” — said a leading analyst of PSB Dmitry Gritskevich. If the Central Bank will go unsecured on the issue in favor of the government, an independent monetary policy can put a cross, Cousin agrees: “it is Unlikely that this is expected, since it will be the turn of financial and economic policy 180 degrees”.

To run the printing press, the Bank of Russia has repeatedly called on presidential adviser Sergei Glazyev. In his opinion, to stimulate economic growth, the Central Bank needs to carry out the issue in 3 to 7 trillion rubles.

The transition to emission to eliminate fiscal imbalances would not solve the problem, but rather exacerbate them, says head of the analytical Department of the Zerich capital Management” Nicholas Podlevskikh. “The issue of money will drive inflation, but not economic growth,” says Vakhitov. — The economy is not growing not because of lack of money, and because of the reluctance to invest them in high risk. Change the situation can only structural reforms, including persistently low inflation”. CB will not succumb to pressure, said the economist.

Whether to reduce the Central Bank rate?

The state budget can become the main obstacle for a rate cut at the meeting of the Central Bank on Friday, April 29, I think most economists and analysts surveyed . Of 31 experts believe 22 that the Board of Directors of the Bank of Russia will leave rates unchanged at 11% per annum. The Central Bank set a rate of 31 July 2015 and at the end of the last five meetings left her unchanged.

The lack of budget balance — an important factor for the CBA, I am sure Gritskevich: “the Regulator expects the inflow of liquidity into the banking system at the expense of the Reserve Fund in 2016, $ 3.8 trillion with an average annual price of oil at $30 a barrel, it may fuel inflationary pressures in the economy.”

Recently, the Bank of Russia articulates a sufficiently clear signals to market participants, indicates the Deputy chief of Department of the analysis of market conditions of Gazprombank Gulnara Hidersine: “From these signals we see that in conditions of high risks and budget volatility in the financial market, the regulator intends in the near future to maintain a moderately tight monetary policy”. She believes that the rate can be lowered only at the October meeting when there will be clarity with regard to the amendments to the budget.

Nine of the 31 economists believe that the Central Bank will cut rates. In favor of this decision saying the reduction of inflationary pressures, the rising cost of oil and the strengthening of the ruble, says the analyst of “KIT Finance Broker” Anna Ustinova. In her opinion, the Central Bank will cut rates by 0.25 percentage points Since the beginning of the year prices were 2.4 vs 7.9% for the same period of 2015, so it is natural to expect from the Central Bank’s steps to reduce rates, agrees podlevskih. He predicts that the Board will cut the benchmark rate to 10.5% per annum. Experts of the Department of macroeconomic policy and cluster analysis of the Bank believe that it is possible to expect a rate cut by 0.25–0.5 p. p. Recent population surveys show that inflation expectations continue to decline; increased stability of the foreign exchange market amid rising oil prices; in addition, the return on the market of ruble government bonds at the indicative securities remains at a low level, they indicate.

It is not clear what can be achieved by the Bank of Russia, maintaining rate at a high level, says a senior economist at Sberbank Investment Research Anton Struchenevsky: “Liquidity in the banking system this does not become less, as the funding of the budget deficit is the main source of money supply”. In his opinion, the high rate only reduces the credit demand. Interest rates need to be higher than inflation — this is a guarantee of financial stability, but its too high level is a threat to the economy, adds Struchenevsky.