Economic Factors Behind the Ruble and Currency Movements in Russia

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The Moscow Stock Exchange reports the dollar at 12:22 Moscow time at 87.8294 rubles. The euro also declined during the session. Its peak fall reached 96,036 rubles, down 84 kopecks by the close. At 12:22 Moscow time the euro stood at 96,381 rubles.

Why did the dollar weaken?

The ruble has strengthened against the dollar, euro and yuan since October 11, when a decree was signed reinstating mandatory sales of foreign currency earnings by Russia’s largest exporters. A chief analyst from Sovcombank attributes the move as the main factor supporting the ruble at this time.

What is the essence of the decree from President Vladimir Putin?

Putin signed a decree on implementing the compulsory sale of foreign currency proceeds received by Russian exporters under foreign trade contracts. The government confirmed the measure. The decree targets 43 Russian export groups across the fuel and energy sector, metals, forestry, chemical industries and grain production. The names of individual companies were not disclosed.

Under the government decision, exporters must place 80 percent of their foreign exchange earnings into Russian bank accounts within 60 days of delivery. They are then required to sell at least 90 percent of the borrowed currency in the domestic market within two weeks. Additionally, at least 50 percent of the amount under each export contract must be sold, regardless of the currency used in the agreement.

A scholar from the Russian University of Economics, Denis Perepelitsa, noted that the tax period has begun and exporters are selling more foreign exchange earnings than usual. The statement from GV Plekhanova adds that Russian companies must pay taxes on mineral extraction, value added, personal income and other wages by November 28.

The oil market has shown a slow recovery, with the North Sea Brent price rising to $81.82 on Tuesday on the London ICE Exchange, which in turn increases foreign exchange earnings. The economist cited another factor as the state’s control of capital outflows and close monitoring of the ruble exchange rate ahead of presidential elections.

BCS World of Investments stock market expert Mikhail Zeltser noted that the Central Bank of Russia raised the interest rate to 15 percent, which dampened money demand. Vasiliev explained that higher deposit rates boost ruble savings, increasing demand for the ruble. When demand for a currency grows, the exchange rate tends to rise.

Where could the dollar bottom out?

Vasiliev believes the ruble could strengthen further in November and December 2023 to around 80–85 rubles per dollar, 88–93 rubles per euro, and 11.2–11.9 rubles per yuan.

The ruble may stay favored due to the forced sale of foreign earnings by the largest exporters, a continued current account surplus, and high ruble interest rates. At the December 15 meeting, the Central Bank may raise the key rate by another 100 basis points to 16 percent annually, with a possibility of a 200 basis point increase to 17 percent if inflation remains elevated. This view reflects ongoing tightening before the meeting, per the analyst.

Perepelitsa also suggested that the dollar could dip to around 85 rubles while trends hold. Vladimir Zotov, chief operating officer of UBRD treasury, expects a comfortable range for the Russian budget between 85 and 90 rubles per dollar in the near term.

Zeltser added that a December floor might be 87 rubles for the euro, 95 rubles for the yuan, all in rubles, with a potential technical rebound from these levels. He also noted that a new wave of ruble devaluation is not expected while the central bank maintains a tight policy and exporters conform to requirements for an extended period, likely into spring 2024.

Vasiliev projected continued ruble strengthening into January through March 2024 due to subdued import demand and lower currency demand overall.

Renaissance Bank’s head of investment analytics, Pavel Zhuravlev, suggested Russians might extend foreign exchange purchases to November 28, timing them with the end of the tax payment period for many companies in Russia.

Experts also warned of possible fluctuations linked to tax payments, which tend to favor ruble strengthening, and typical year-end public sector spending that supports the currency. Some noted a weaker trend has been steady for now, but the overall direction depends on policy and economic indicators. A common caveat among analysts is to measure any currency moves against personal financial plans and risk tolerance, especially for those considering currency purchases or holdings as a hedge against inflation or import costs.

Overall, the market view remains that strategic factors like the export sales requirements, balance of payments conditions, and tight monetary policy will continue to shape the ruble’s path in the near term, with several experts suggesting cautious optimism about a gradual stabilization rather than dramatic shifts in the immediate future.

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