Three questions about the ruble: the Russian currency react to Putin’s words

Six months ago, officials and experts discussed scenarios with an exchange rate of 100 rubles per dollar, and now the authorities are beginning to worry that the ruble is too expensive. On Tuesday, Russian President Vladimir Putin said that the ruble is strengthening, despite the fact that oil failed to fix above $50 per barrel, and last week, “marking” near $47. The market took Putin’s words as a signal that a strengthening of the ruble caused concern of the President, says chief analyst at VTB24 Stanislav Kleschev. This can be considered a “verbal intervention”, says the trader BKS Alexander Mulberger.

The President drew attention to the exchange rate when the dollar fell below 63 rubles., — perhaps the President believes that this is the boundary beyond which the ruble is not necessary to strengthen, wrote analysts at Sberbank CIB. On Tuesday, on the background of Putin, the ruble fell heaviest on the interval of three weeks, and today fell back by a further 20 cents in the dollar on the Moscow exchange on 20:41 MSK amounted to RUB 63,74 However, chief economist at Eurasian development Bank Yaroslav Lisovolik believes that we should not overestimate the meaning of what was said by the President. Rather, it is a statement of fact: the ruble is rid of oil and became more influenced by other factors, — Vladimir Putin has just noted a new trend that formed on the currency market, says Lissovolik.

Why are the authorities worried due to the strengthening of the ruble?

The statement of the President may mean that the authorities are concerned about too strong strengthening of rouble in the conditions of low oil prices, this may lead to exceeding the budget deficit above the planned level, says the analyst of Raiffeisenbank Denis Poryvai. In addition, does not preclude the analyst, perhaps the President is concerned that the strengthening of the ruble in stable oil prices reduces operating profit oil and gas sector. And that could lead to a slowdown in recovery of GDP. “It is clear that a significant portion of revenues is generated by exports, a strong ruble exchange rate unfavorable to budget,” he adds.

In terms of lower oil prices, the weakening of the ruble is a natural mechanism of adjustment of ruble-denominated budget revenue. But the violation of the correlation between oil and the ruble, recorded since the beginning of summer, led to the fact that the cost of a barrel of Brent in rubles fell from 3350 RUB to RUB 2984 and is now 6% below that which was budgeted 2016.

In terms of budget preparation, the President’s statement can be construed as an endorsement of highly conservative approach to planning government spending, said chief analyst at VTB24 Stanislav Kleschev. “Strengthening of the national currency in the conditions of the stopped growth in oil prices carries a risk of shortfall in the planned ruble-denominated budget revenue from exporters,” says the analyst. The weakening of the ruble, as well as further growth of prices for hydrocarbons, could improve the reducibility of the budget, said mites.

Is there anything I can do CB?

Putin’s words about the strong ruble are contrary to the position of the Central Bank, says chief economist at Alfa Bank Natalia Orlova. “Review of the President opposes the intention of the Central Bank to convince everyone that inflation targeting is an economic policy priority,” says Orlov.

The attempt to weaken the ruble directly adjoins a risk to the achievement of the global objectives of the Central Bank to reduce inflation, reminds Stanislav Kleshchev. The market is not expecting any action from the regulator and the government, which could lead to a sharp weakening of the ruble, said Denis Poryvai. He does not exclude that one of these measures could be lowering the rate of the Central Bank. “But this is hindered by the policy of inflation targeting. There is a risk that because of the rate cut will not be able to achieve the stated goal — 4% price growth per year,” he says.

Prerequisites for the Central Bank took steps to weaken the ruble no, said Yaroslav Lissovolik. “Most likely, the Central Bank will simply lower the rate and this will have an impact on the course. According to our forecasts, before the end of the year, the regulator can reduce the stack by 1%. But the measure of the Central Bank linked to the prevention of the risk of a recession, not a desire to influence foreign exchange market”, — says the economist.

Central Bank intervention would be the most effective way to influence the exchange rate of the Russian currency, the trader said BKS Alexander Mulberger. “But I think that the Central Bank may not take such a step, since the controller now everything is OK. Inflation down, the ruble is more or less stable,” — he said. In addition, reminiscent of Mulberger between the government and the Central Bank have disagreements about financial and economic policy. “Even if we assume that the government will ask the Central Bank to buy the currency market to weaken the ruble, the regulator may put forward an alternative proposal is to carry out structural reforms in the economy to attract capital into the country.

Representatives of the Central Bank have repeatedly said this,” — said the trader.
In addition to direct intervention, any instruments of the Central Bank’s liquidity management can affect the ruble, said the head of research and forecasting, rating Agency ACRES Natalya Porokhova, but she also does not expect that the Bank will now use some tools to influence the exchange rate (except in the key rate in case of potential external shocks), as the purposes of targeting rate of the Bank of Russia no, his priority is inflation targeting.

What will happen to the ruble if the government will not take any action?

Support of the domestic currency is now providing tax period and the payment of dividends, the analyst “Raiffeisen Capital” Sofia Kirsanova. The peak of tax payments is expected on July 22-25. “However, if the price of a barrel next week starts to grow, we may see the weakening of the ruble by 1-2 rubles./$. The impact on the value of the currency of the Russian Federation can render the Central Bank’s decision to lower the rate at the next meeting, on 29 July, which we believe is more than probable, given the consistently low rate of inflation in recent weeks, the analyst said.

The national currency is the possibility of strengthening by 1.5% against the currency basket, said Stanislav mites. However, the preconditions for opening short positions on the ruble becomes more and more. “We believe that the passage of the peak of dividend payments and tax payments will cause investors to once again pay attention to seasonality, according to which August is the most unfavorable for a ruble a month,” notes the analyst. He recalled that since 1993 there were only 3 times when the national currency was able to appreciate (and then only within 0.5%).

Don’t forget to feature this year — the next peak of the political cycle, reminiscent of mites. Ahead of parliamentary elections September 18, the pressure on the ruble could further grow, he said.
The government may cancel the existing 2015 Directive mandating exporters to increase net foreign currency assets, according to Denis Poryvai. This can lead to the fact that the dollar will exceed 70 rubles. at current oil analyst, not excluding informal measures by which the government can regulate the foreign exchange market.