Why did the ruble strengthen?
The ruble exchange rate is strengthening after the decision on the compulsory sale of part of foreign exchange earnings of individual exporters. Another factor was the increase in oil prices as a result of the development of the Palestinian-Israeli conflict. This opinion was expressed by Candidate of Economic Sciences, Associate Professor of the Department of World Financial Markets and Fintech of the Russian University of Economics. GV Plekhanova Denis Perepelitsa.
Sovcombank chief analyst Mikhail Vasiliev said that the ruble exchange rate has strengthened since October 12, when this was announced in the presidential decree.
The decree came into force on October 16 for a period of 6 months and applies to 43 company groups related to the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and forestry industries and grain farming. According to government parameters, companies are required to deposit at least 80 percent of their foreign exchange earnings into accounts in Russia and sell 90 percent of this amount.
“Overall, Russian officials have shown that the 100 ruble per dollar limit is important and will likely be maintained by a wide range of administrative measures. “This has dampened the excitement of speculators who have been betting against the ruble in the last 10 months,” he said.
BCS Forex analyst Anatoly Trifonov said that the ruble rate traditionally strengthens in the last ten days of the month, as exporters sell more foreign currency to pay taxes.
“We predict that there will be an increase in oil and gas budget revenues in October due to high oil prices as well as non-payment of fuel tippers. Payment may not be made in September due to high domestic oil prices. “For this reason, exporters need to sell more foreign currency to fulfill their tax obligations,” he said.
According to Vasiliev, the ruble will be supported by the Central Bank’s daily sale of 0.75 billion rubles of yuan from reserves within the scope of budget operations and new export taxes that come into force on October 1. According to the analyst, “exchange rate” export taxes could increase the supply of foreign currency on the market by about $0.6 billion per month.
“Finally, the expectation that the key interest rate will increase by another 100-200 basis points to 14-15% this Friday is in favor of the ruble exchange rate. “An increase in the interest rate will increase the attractiveness of ruble savings, give cold loans and reduce the demand for foreign currency for import purchases in the coming months,” concluded Vasiliev.
Alina Dzhus/socialbites.ca
What will be the limit of ruble strengthening?
“We expect the ruble exchange rate to strengthen further this week due to the above factors. “The estimated trading range is 91-96 rubles per dollar, 97-102 rubles per euro and 12.4-13.1 rubles per yuan,” Vasiliev predicted.
The expert believes that in the base scenario, the ruble exchange rate will remain in the range of 90-100 rubles per dollar until the end of the year. The analyst does not expect the ruble’s strengthening cycle to be long. At the beginning of November, he suggested that the ruble exchange rate might begin to weaken after the end of the tax period.
“Exporters are likely to be less active in selling foreign currency at the beginning of the month. On the contrary, importers can intensify their foreign exchange purchases at an appropriate rate in order to purchase imports for the New Year holidays and sales. In addition, there may be a further acceleration of inflation against the ruble towards 7.5% by the end of the year and a possible increase in budget expenditures at the end of the year. These will lead to an increase in the ruble money supply and can be used to purchase imports,” Vasiliev explained.
He suggested the ruble would be supported by higher oil prices, the return of compulsory sales of foreign exchange earnings by the biggest exporters and a rise in the key interest rate, possibly to 15% by the end of the year.
Vasiliev expects the ruble rate by the end of the year to be 94-98 rubles per dollar, 100-105 rubles per euro and 12.8-13.4 rubles per yuan.
According to Perepelitsa, the limit on strengthening the ruble exchange rate was actually set in the Russian federal budget – it was created on the basis of 92 rubles per dollar.
“Various shock absorber mechanisms will also reduce and maintain the ruble exchange rate at around 92-95 rubles in the near future. “Since the volume of foreign exchange earnings sold on the foreign exchange market is regulated “manually” by the Russian government, it is unlikely that the ruble will strengthen below 92 rubles, as this will lead to a budget deficit,” the economist said.
Perepelitsa concluded that if the macroeconomic situation persists, the ruble exchange rate will remain within the established range. The economist added that in the event of a significant change in macroeconomic conditions, the removal or implementation of sanctions, or the development of a global financial crisis, the ruble exchange rate may fluctuate significantly, regardless of government actions.
According to Trifonov, the foreign exchange market will remain significantly tighter than before 2022, so the ruble exchange rate will remain highly volatile.
“In the base scenario, we expect the ruble to strengthen to 94.1 rubles per dollar by the end of the year. The analyst noted that due to increased volatility, the exchange rate may fluctuate in the range of 90-96 rubles per dollar.
Pavel Zhuravlev, head of investment analytics department at Renaissance Bank, added that given that the dollar exchange rate has been above 90 rubles since the beginning of August, it can be translated into new inflation levels.
“Keeping it close to these values will not contribute to further price increases. “Therefore, we can expect the ruble to strengthen while maintaining the lower limit of 90 rubles per dollar,” he admitted.
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.