The market became nervous
Made in the evening of 25 January, the announcement of the Finance Ministry about the upcoming launch of foreign currency purchases on the market worked immediately: on 26 January, the dollar rose above 60 rubles, and the ruble has suffered the largest losses of the day among all the currencies of developing countries.
“Of course, the market is nervous, since many perceive the mechanism, announced by the Ministry of Finance, as a partial departure from the policy of free floating exchange rate”, — said a senior economist at Danske Bank Vladimir miklashevskii. Although the Ministry of Finance did not say anything about the necessity of weakening of the ruble, and the Central Bank reiterated the commitment to the free exchange rate, “there is a clear feeling that discomfort because of the level of the ruble has reached a certain limit,” the analysts write Sberbank CIB in review for January 26.
As of 18:30 Moscow time the ruble fell against the dollar by 1.46% (data from Bloomberg terminal), the dollar on the Moscow exchange traded at 60,40 RUB (against 59,54 at the close of trading the day before). The official government forecast of 67.5 rubles per dollar on average for 2017.
Beginning in February 2017, the Finance Ministry will save in additional oil and gas reserves, the income from the excess of actual oil prices over the budgeted $40 per barrel, and the Central Bank on behalf of the Finance Ministry will buy foreign currency in the volume of these oil and gas windfall. Oil and gas revenues of the budget depend on the price of oil in rubles, and she as of the evening of 26 January was $ 3405 RUB per barrel of Brent, compared with about 2800 RUB., included in the budget 2017.
The ruble may fall by 5-7%
The Central Bank, which will act as the agent in the operations of the Ministry of Finance for the purchase of the currency, may daily to buy about $100 million, analysts write Sberbank CIB is “significantly less than in the period from may to July 2015, when the controller every day, bought at $200 million.” The annual volume of currency purchase will be $20-25 billion, the forecasts of Raiffeisenbank, and this will lead to a weakening of the domestic currency for 3-4 rubles. (or 5-7% against the dollar, the same evaluation results ING on stable oil prices). But, according to other analysts surveyed by correction of the ruble will be negligible (see). Short-term forecast Danske Bank (58,70 RUB for a dollar a month in advance) is now “under threat,” says miklashevskii, as the market may be nervous until the beginning of February, but since the Bank is expecting moderate growth in oil prices, the forecast is still not going to change.
Forecasts of experts
Yaroslav Lissovolik, chief economist at Eurasian development Bank
The dollar in February: 60 RUB.
The dollar by the beginning of summer: 60 RUB.
“This factor will really be few to contain the strengthening of the ruble. But from the point of view of the volume of transactions it is hardly possible to speak about any radical influence. Such measures reinforce the exchange rate at levels close to 60 rubles per dollar. This parameter becomes an important landmark on the horizon of the next months. As for the Euro, now also we can expect some stabilization at those levels, which are now found the market. But during the first half of the year we plan several important events in Europe, including elections in France.
European factors may play a role in the growth of volatility of the currency pair dollar/Euro. Accordingly, this may give some splash or some swings on the pair rouble/Euro, but I don’t think these differences are very significant. Rather, the risks are biased towards a slight weakening of the Euro against the ruble and the dollar. My Outlook for the pair rouble/Euro until the end of February — 64 rubles. per Euro and 62-63 RUB by the beginning of summer.”
Andrei Shenk, analyst UK “alpha-Capital”
The dollar in February: 59-62 RUB.
The dollar by the beginning of summer: 59-62 RUB.
“Scheme of the Ministry of Finance at current prices for oil will lead to the replenishment of reserves and can keep the ruble from further strengthening. In the baseline scenario of the Ministry of Finance and the Central Bank laid the high price of oil and the flow of funds from foreign investors. In my opinion, these assumptions may not be justified: not the fact that the oil price will not fall, as foreign investors lose appetite for risk and, consequently, the interest in Russian assets. In any case, to have on the situation, a significant influence of the Ministry of Finance will not. If in the early or mid-year non-residents will still support the ruble by the end of the year due to the decrease rate of the Bank of Russia and the rise of the rate of carry trade will cease to be profitable. Therefore, the excess currency we will not. I believe that by the end of the year, the dollar may rise to 64-65 RUB.
Based on fundamental factors, we can say that the Euro should strengthen against the dollar. But in the case of European currency much depends on the political situation and the structural problems of the Eurozone: high debt in some countries, relations with the United States, problems in the banking sector and the mild policy of the European Central Bank.”
Egor Susin, chief expert, center for economic forecasting of Gazprombank
The dollar in February: 60 RUB.
The dollar by the beginning of summer: 61-62 RUB.
“The volume of purchases that you plan at current oil prices, more or less clear — about $20 billion In this case, the impact on the rate will certainly be, but essentially the situation does not change. According to our estimates concerning the course that might be without these purchases, the change will be at the level of 5%. That is, the ruble during the year will be about 5% weaker than if the purchases were not. In the first quarter is traditionally a sufficiently large export revenues, low import volume, plus there is no ruble liquidity. Therefore, I would not expect that in February the rate will be higher than 60 rubles per dollar. At the end of spring and early summer forecast 61 to 62 rubles per dollar.
In the pair rouble/Euro will be determined by the Euro-dollar exchange rate. US gradually raise rates, and Europe while continuing the program of monetary stimulus. But after the April purchases by the ECB will shrink the Euro against the dollar could strengthen somewhat. Accordingly, the Euro may cost 64,5 RUB in February and 65-66 RUB at the end of the spring.”
Buying $100 million and even $200 million per day is insignificant in the turnover of the market of $5-8 billion, said economist at BCS financial group Vladimir Tikhomirov, stressing that this cannot be considered intervention is the sterilization of foreign exchange earnings in reserve funds. Currency comes into the country anyway through the earnings of exporters, and they sell it for rubles, then to pay in taxes to the budget. Part of those extra rubles will go to market through purchases of foreign currency Ministry of Finance. According to Tikhomirov, the operation of the Ministry of Finance will not have any effect neither the strengthening nor the weakening of the ruble, and the real purpose of these operations is different: first, to strengthen budget discipline, and second, to assist the Bank in achieving its inflation target of 4%. If the government decided not to join the reserves and spend on the additional costs would be additional inflow of rubles in the economy — inflation factor, explains the economist.
Such financial discipline is like rating agencies, and if there’s geopolitical risk, when such a mechanism of country credit ratings of Russia can be improved, says miklashevskii from Danske Bank.
And whether a weak ruble?
The question is whether the economy needs a weak ruble, talk to analysts ING. The Ministry of Finance, in announcing the scheme for the purchase of the currency, explained that she will be “in order to enhance the stability and predictability of domestic economic conditions” (including for the protection of the real effective exchange rate of the ruble from undue volatility), and first Deputy Prime Minister Igor Shuvalov argued that the negative impact of the volatility of the ruble on Russian exporters. ING recalls the results of a survey of domestic industrial and agricultural enterprises in June 2016 (the study conducted by the Central Bank and the Gaidar Institute). According to this survey, the majority of companies from different sectors agree that a strong ruble would help them to modernize production using foreign technologies, to reduce costs, improve quality and, consequently, increase competitiveness. Thus, imply ING that the decision about buying currency could stand a lobby of exporters.
In the mechanism of the Ministry of Finance there is a contradiction: since the monthly volume of foreign exchange transactions linked to the assessment of additional oil and gas revenues in the current month, and this estimate in turn depends on oil prices of the previous month and the ruble exchange rate, all else being equal a stronger ruble would mean a lower volume of purchases of foreign currency (and Vice versa — the more currency with less strong ruble). “Indeed, the mechanism of interventions is not perfect, has some problems, but I would not link the strengthening/weakening of the ruble with oil, as the logic of the mechanism of the ruble should not be sensitive to oil,” — says the chief economist of Credit Suisse in Russia by Alexey Pogorelov. What the ruble is sensitive is to fluctuations in the capital account. “For example, oil is traded at current levels, but it is large capital inflows: the ruble strengthened — reduced oil and gas revenues — reduces the amount of intervention”, — cites the example of economist. The rule of the Ministry of Finance looks contradictory at first glance, but the ruble is not run budget and balance of payments, says the analyst of Raiffeisenbank Denis Poryvai. “This means that if the exchange rate at some point, strengthened balance of payments appears in the outflow: the money will go out of the country through imports. On the basis of the balance of payments, the exchange rate will come to its equilibrium position. And in this case the Ministry of Finance just a few deflects from its equilibrium position due to purchases of foreign currency”, — says Poryvai. The press service of the Ministry of Finance to the questions not answered.