Starting from October 16, 2023, Russian exporters must credit at least 80 percent of the foreign currency they receive to accounts in domestic banks and sell at least 90 percent of the credited proceeds on the domestic market. These rules apply to 43 company groups and are valid until April 30, 2024.
Pros and cons of the extension
The press service of the Russian Ministry of Finance told socialbites.ca that the measure demonstrated its effectiveness and advocated its extension.
“As we see, this measure helped stabilize the situation in the domestic foreign exchange market. In this respect, its extension at this stage is justified. Here “The Ministry of Finance will evaluate and finalize the revenue refund plan if exporters have difficulty in refunding it,” he explained.
The press service of the Central Bank of the Russian Federation told socialbites.ca that the regulator does not see any compelling reasons to extend the mandatory sale of foreign currency earnings.
“The Bank of Russia believes that the impact of this measure on the foreign exchange market in the past months has been moderate compared to the impact of ongoing monetary policy on the exchange rate and the key interest level (currently 16%).” told the press service of the Central Bank.
He added that the growth in the value of exports, which affected the foreign exchange market with delays – compared to the lows in mid-summer 2023 – made a significant contribution. These are related to the timing of foreign trade agreements.
“We will reject it in the future”
“In August-September 2023, the ruble exchange rate has noticeably weakened. Both businesses and citizens had many concerns about this issue. After the presidential decree, the ruble exchange rate against the dollar increased by more than 13% in October. “Of course, the strengthening of the ruble was also supported by the decisions of the Bank of Russia to increase the interest rate,” Boris Kopeikin, first deputy head of the Center for Social Development, told socialbites.ca.
In his opinion, maintaining a relatively stable and predictable exchange rate is an important condition for the development of the country’s economy, growth of foreign trade and attracting investment.
“As part of the sanctions, the Central Bank’s reserves in euro and dollar were frozen. They cannot be used to reduce exchange rate volatility. Therefore, temporary measures are needed to stabilize the situation. Extending the obligation for key exporters to sell foreign currency until the end of 2024 is an important element in maintaining macroeconomic stability.
It is worth noting that the decision was announced in advance; The previous decision was valid until April. And we will reject forced sales in the future. This was confirmed by the president during the direct line in December,” Kopeikin said.
Alexander Bakhtin, investment strategist at BCS World of Investments, pointed out that the threshold for mandatory return and sale of proceeds may vary depending on the price table in commodity markets, exchange rate dynamics and macroeconomic parameters. Investment strategist did not rule out softening parameters for selling foreign exchange earnings from 90% to 50-70%.
What will happen to the ruble exchange rate?
Gazprombank Private Banking General Director Egor Susin suggested that the extension of the measure would lead to less fluctuation in the ruble exchange rate. The expert does not expect a significant impact on the exchange rate:
“The decision to sell foreign exchange earnings has now come into force. The extension will not change the general situation, only the expectations of financial market participants. “Negative expectations regarding the ruble exchange rate will disappear.”
Mikhail Vasiliev, chief analyst of Sovcombank, explained to socialbites.ca: Many financial market participants have strong expectations that the ruble will weaken from the second quarter; They do not rule out that the dollar may rise to 100 rubles or higher. The analyst believes that these expectations will now decrease and the national exchange rate will become more stable.
According to Bakhtin’s predictions, the dollar exchange rate will consolidate in the first quarter of 2024. 87 rubles with possible movement segments 83.5-85 rubles. For the euro, these are the levels respectively. 93-95 rubles. The investment strategist explained that in addition to the extension of the income measure, the strengthening of the Russian currency will be facilitated by the high interest rate of the Central Bank.
socialbites.ca reports that, according to technical analysis, the limit for strengthening the ruble exchange rate is 83.5 rubles per dollar and 92.5 rubles per euro. In other words, if the measures are extended, the ruble exchange rate may actually strengthen to the maximum level. Vasiliev explained that this is not only positive for Russian business and citizens, but also positive for returning inflation to the 4 percent target level.
Doctor of Economic Sciences, Professor of the Department of State and Municipal Administration of the Financial University under the Government of the Russian Federation Yuri Shedko admitted that in 2024 it is unlikely that exchange rates will fall below 83.5 rubles per dollar and 92.5 rubles per euro.
According to Bakhtin, after the first quarter, a gradual weakening of the ruble exchange rate to 90-92 rubles per dollar is possible.
“Russia’s federal budget this year consists of 90.1 rubles per dollar. By the end of spring or summer, the key interest rate may turn downwards, which will gradually begin to lose the basic confidence of the ruble. At the same time, the complete removal of measures to control the repatriation and sale of export proceeds from April could lead to an immediate increase in volatility. Therefore, it is highly likely that control measures will be expanded by softening the threshold of compulsory sales to 50-70 percent,” Bakhtin explained.
According to him, if during the year the commodity price picture improves noticeably and the ruble begins to actively strengthen, temporary control measures can be lifted immediately.
Should I buy foreign currency?
Candidate of Economic Sciences, Associate Professor at the Department of Global Financial Markets and Fintech at the Russian University of Economics. GV Plekhanova Tatyana Belyanchikova recommended buying foreign “poisonous” currencies only when they are really needed.
“Interest rate on ruble assets (maximum amount for deposit is currently 17.5%) It allows you to significantly protect savings from inflation, which foreign currencies cannot do with low interest rates in conditions of relative stability of the exchange rate,” the economist said.
According to Shedko, it is recommended to buy dollars and euros immediately before going abroad and keep the funds in fixed-term ruble deposits until that time.