Why is the dollar falling?
The ruble exchange rate has been strengthening against the dollar, euro and yuan since the evening of October 11, when it was announced that the return of compulsory sales of foreign currency earnings of the largest Russian exporters was announced. Russian President Vladimir Putin signed a decree to this effect that day.
Sovcombank chief analyst Mikhail Vasiliev called the sale of foreign exchange earnings an important factor in the strengthening of the ruble exchange rate. According to the expert, exporters are already doing this in accordance with the parameters. He added that as a result, the supply of foreign currency in the market increased and began to exceed the demand for dollars and euros from the same importers. The ruble exchange rate traditionally strengthens when the supply of a currency exceeds its demand.
“As of the October tax period, when all exporters sold foreign currency to pay the budget, additional support was provided to the ruble until October 30. There was an increase in oil and gas taxes in October. The expert stated that these were achieved by high oil prices and additional income tax paid quarterly.
In addition, the increase in the key interest rate by 200 basis points to 15% annually was also in favor of the ruble. As a rule, the actions of the Central Bank affect the ruble exchange rate with a delay of one and a half months. This time the price of the Russian currency rose sharply against the dollar and euro immediately after the regulator’s decision. The dollar traded below 93 rubles and the euro traded below 98 rubles for the first time since May 2023. Alexander Bakhtin, investment strategist at BCS World of Investments, explained that this reaction to the trend is “psychological”. The market expected the Central Bank to raise the key interest rate by 100 basis points to 14%, but the regulator took a tougher step.
“An increase in the interest rate will lead to an increase in the cost of credit, which will reduce consumer and investment demand, including import demand. The demand for money will decrease. In addition, deposit rates will rise and bond yields will increase. As a result, the attractiveness of ruble savings will increase and the demand for the ruble will increase ” Vasiliev explained.
This will also help strengthen the ruble exchange rate. When the demand for a national currency increases, the exchange rate also increases.
What will happen to the dollar next?
“The high oil prices seen in September-October may have been reflected in the current sales revenues of the companies. In the near future, the dollar may cost 91-92.5 rubles and by the end of November it may approach 90 rublesThat’s when companies start selling additional volumes of currency to make ruble tax payments,” Bakhtin predicted.
In the base scenario, Vasiliev expects the dollar to cost 90-100 rubles by the end of the year, the euro to 97-102 rubles, and the yuan to 125-13.1 rubles.
“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 to import goods for the New Year holidays and sales,” he explained.
He also added that the ruble exchange rate may remain under pressure due to expectations that inflation will accelerate further to 7.5-8% by the end of the year and a possible increase in budget expenditures at the end of the year. Secondly, the ruble will lead to an increase in the money supply and can be used to purchase imports. Growth in the money supply tends to weaken the ruble.
Ministry of Economic Development of the Russian Federation expects the cost of the dollar to increase 94 rubles In December 2023.
According to Vasiliev, exchange rate export taxes, which depend on the exchange rate of the national currency and replenish the country’s federal budget, are maximum at the exchange rate above 95 rubles per dollar.
“The ruble will be supported by higher oil prices. A barrel of North Sea benchmark Brent will cost $85-95 by the end of the year. Additional factors include the sale of foreign exchange gains, an increase in the key interest rate to 15.5-16% by the end of the year, and expectations that the authorities will take additional administrative measures to keep the exchange rate above 100 rubles per dollar. This will lead to a strengthening of the national currency,” the analyst predicted.
Vasiliev listed the new administrative measures that Russian authorities can take as tightening restrictions on capital outflow, a ban on paying dividends and loans abroad, including in rubles, as well as a ban on lending to foreign trade units and a withdrawal limit. ruble abroad. Possible steps include raising the key interest rate to 17-20 percent, increasing the sale of yuan from reserves, banning Russian companies from buying back shares from non-residents and slowing the exit of foreign companies from the Russian market. analyst listed.
Is it possible to sell one dollar for 60 rubles?
Vasiliev does not expect that the dollar exchange rate can return to the level of 60 rubles, as happened last year in response to the introduction of compulsory sales of foreign currency earnings by exporters.
The Ministry of Economic Development and the Ministry of Finance include an average exchange rate of 90 rubles to the dollar in their 2024 forecasts. Vasiliev suggested that the average exchange rate of the American currency would be 100 rubles, the euro 106 rubles, and the yuan 13.2 rubles.
“But risks are shifting towards a weaker ruble exchange rate, higher inflation and a higher key interest rate. A scenario is possible when oil rises above $100 per barrel and the dollar will be at 60 rubles per dollar if exporters actively sell foreign currency and the authorities allow the ruble to strengthen up to 60 rubles per dollar. “In this scenario, the requirement for compulsory sale of foreign exchange earnings will be relaxed,” he emphasized.
Grigory Zhirnov, head of corporate business analytics at Bank DOM.RF, believes that Russians will not see one dollar reach 60 rubles unless something extraordinary happens.
“Such a significant strengthening of the ruble exchange rate last year was largely due to the fact that imports decreased by almost half. Strict restrictions were also placed on capital flows. “On the contrary, in an optimistic scenario, we can talk about the exchange rate returning to the range of 85-90 rubles per dollar,” he said.
A return to 60 rubles per dollar is now possible only in the event of a sharp tightening of sanctions against Russian imports (and some friendly countries join the restrictions) or a significant increase in oil prices and keeping them at a high level for some time. For a long time, summarized BCS Forex analyst Anatoly Trifonov. He called both scenarios “highly unlikely.”
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.