The Bank conducted an assessment of stress scenario working version of the basic directions of the monetary policy (DCT) of the Bank of Russia for the medium term, providing for an average oil price of the period $25 per barrel.
“The average price of oil at $25 per barrel will fall in the current account balance transactions up to $7-10 billion, while the dollar exchange rate will exceed 95 RUB. In this case, inflation will accelerate to 10%,” wrote the analyst of Raiffeisenbank Denis Poryvai, in its review on Thursday. In his opinion, in this case, the demand from companies and banks on foreign currency REPO will grow to $40-55 billion due to resumption of demand for foreign assets (the Central Bank’s forecast of $7-12 billion).
The scenario with the lower oil prices to levels around $25 per barrel by the beginning of 2017 and its preservation at a low level until the end of 2019 as specified in the draft document “Main directions of unified state monetary policy for year 2017 and for the period 2018-2019 years”, published by the Central Bank on Wednesday, September 28. The regulator calls this scenario “risky” or “second”. This is one of the three scenarios under consideration of the Central Bank in addition to the basic (basic).
The Bank of Russia considers as the most probable baseline scenario, which forecasts the average annual price of a barrel to $40 in the next three years. As suggested by the regulator, when the cost of oil coming into the country currency will be sufficient to service companies and banks external debt. Therefore, the Central Bank plan to gradually end operations to provide banks with currency. To repay the debt on foreign currency REPO banks have until the end of 2017. Also in the baseline scenario, the Central Bank expects inflation slowdown to 4% by the end of 2017. The balance of the current account, under this scenario, will amount to $27 billion.
In case of realization of the risk scenario, the regulator expects a reduction in annual surplus on the current account to $20 billion in 2017 and 2018 and $18 billion in 2019. “This stable balance on the current account in the stress scenario is possible only if a substantial fall of imports of goods, this has not been achieved without the devaluation of the ruble,” — says Poryvai. He points out that in the first eight months of the year 2016, the balance was $14.8 billion, compared to $50.2 billion over the same period in 2015. Import of goods in January-August fell by 8.2%. The oil fell only 27% to $42 per barrel.
As noted in the Raiffeisenbank, a stress scenario in which oil prices fall to $25, it’s unlikely.
Last sharp weakening of the ruble was observed in early 2016. At the end of January on the backdrop of the crisis on China’s stock market the price of Brent crude oil fell below $30, the Urals crude oil traded in the range of $25-28. The dollar at auction Moscow stock exchange, then rose above 80 rubles. the Maximum was reached on 21 January: then trading, the dollar rose above 85 RUB.
On the possibility of a sharp increase in the dollar previously warned of Alfa-Bank. In may, a senior analyst at Alfa-Bank Alan Kaziev, referring to technical analysis, forecast the dollar at 80 rubles., and in June, predicted the rise of the dollar to 74.9 RUB In his opinion, a reversal of the us currency may start after reaching a rate of 63 RUB.