Economists criticized the policy of the weak ruble


With the weakening of the ruble, which is projected by the Ministry of economic development, the Russian economic growth next year will be slower than with a stable level of domestic currency. This is stated in the macroeconomic forecast for 2017-2018 prepared by the economists of the Ranepa, the Gaidar Institute and the Academy of foreign trade under the Ministry of economic development.

Experts have calculated two scenarios — the baseline (“stable ruble,”) and a scenario with low exchange (“weak ruble”). In the first case, the nominal exchange rate will be 59.2 per rubles per dollar in 2017 and 57,7 RUB — in 2018, the second of 64.8 rubles and 70 rubles respectively. If stable in nominal terms, the ruble real effective exchange rate (the rate adjusted for inflation in Russia and in the countries — main trade partners) to grow 6.6% and 5.3% in the next two years. With the weakening of the national currency in 2017 will fall and its real exchange rate (by 2.5%). However, in 2018, high inflation (5.7% as at year-end) will increase it to 3.5%.

Prerequisites for the weakening of the ruble will be formed by the summer, said Minister of economic development Maxim Oreshkin. The dollar on the Moscow exchange on Monday traded in the district 56-56,4 rubles, If oil prices remain at current levels, by the end of the year the American currency will cost 62 rubles., and if they fall, then the ruble will fall to 68 rubles per dollar, said Oreshkin. To your target the macroeconomic forecast of Ministry of economic development lays the weakening of the ruble to 69.6 rubles per dollar in 2018, to 70.7–71,8 RUB in the next two years. “The ruble will slightly weaken in nominal terms against the dollar, while in real terms it is somewhat strengthened”, — said Oreshkin. The present course “very beneficial for the purchase of foreign currency”, said the Minister.

A stronger dollar will slow the economy down

A weak ruble will have an impact on economic growth, experts say the Academy and the Gaidar Institute. In 2017, if the currency will be stable, GDP will increase by 1.2% and in 2018 — by 1.8%. And with a weak ruble, GDP this year will grow slightly faster, at 1.4%, but this effect will be exhausted in a year: in 2018, economic growth will be only 1.5%, i.e. 0.3 PP less than in the baseline scenario.

“In other words, the use of low rate of the ruble does not allow, first, to achieve a significant sequential acceleration in economic growth from year to year and, secondly, starting from the second year of this policy related negative effects will slow down the growth rate of the economy in comparison with the policy of free floating,” indicate the authors of the forecast. Under such effects, they imply the impossibility at the same time to ensure that inflation does not exceed 4%, the low level of the nominal exchange rate and low level of the key rate of the Central Bank, which will have to increase to prevent speculation in the currency market. In addition, public confidence in the national currency will decrease, which will force citizens to abandon saving behaviours and to invest in currency and consumption.

Both scenarios Ranepa less optimistic than the target the forecast of economic development (it is his Ministry considers to be primary). He foresees GDP growth of 2% in 2017, 1.7, 2.5 and 3.1% in the next three years, respectively.

For example, GDP

The dynamics of other macroeconomic indicators in the weakening of the ruble will be similar to the GDP: the first time they will rise, however, in 2018 the situation in comparison with the basic forecast will worsen. In a special way is the case with inflation: with the weakening of the ruble, the Central Bank will have to abandon its inflation targeting (now the regulator sets its aims to slowing of price growth to 4% and hold it at that level). In 2017, inflation will accelerate to 6.1%, and in 2018 will amount to 5.7%. In March, inflation amounted to 4.3% compared with March last year. The first Deputy Chairman of the Central Bank Ksenia Yudaeva said that the regulator can achieve the target of “significantly sooner than the end of the year.

Thus, the weakening of the national currency will carry “serious reputational risk” for the Central Bank and economic policy in General: the key rate will have to be kept at the level not lower than 12% per annum (currently 9,75%), say analysts at Ranepa. To perioralny of the ruble has made it a high key rate with low inflation, noted the experts of the Higher school of Economics (HSE) in the latest issue of the Bulletin “Comments on government and business”: “the Reduction in rates will lead to higher capital outflows and the weakening of the ruble, with a corresponding impact on price dynamics”.

Real interest rates on loans with a weak ruble will also be higher than in the baseline scenario, Ranepa. While the Ministry is “interested in a lower real interest rate as one of the mitigating factors for economic growth, while the main objective of the Central Bank is to control inflation,” said Oreshkin.

“Thus, the scenario with lower exchange rate of the ruble can only provide short-term, within one year, accelerate the pace of economic activity, although this period likely reduced confidence in the ruble and the resumption of dollarization of the economy, rising inflation, high interest rates (both nominal and real) on loans to non-financial sector. Starting from the second year dynamics of all macroeconomic indicators in this scenario becomes worse than in a scenario with a floating exchange rate and policy of inflation targeting”, — sums up the experts.

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