Devaluation on the march: for whom did they keep a strong ruble and why did they bring it down now

Yekaterina Maximova

Exporters: income in rupees, taxes in dollars

Only since the beginning of the year, the ruble's exchange rate against the dollar has already decreased by about 12%. The truism is that the Ministry of Finance needs devaluation, because it is one of the easiest ways to increase budget revenues (the deficit of which in March amounted to 3.3 trillion rubles, exceeding the target for the whole of 2023).

The key exporters and the main breadwinners of the state treasury - sellers of oil and gas - occupied almost 60% of the share of exports by the end of 2022. But after February last year, the paradise life for them ended.

Novye Izvestia asked experts: how will the rising dollar affect oil and gas (taking into account the redirection of flows to Asia, calculations in rupees, yuan and dirhams, the price ceiling and discount on Russian oil), if the Federal Tax Service and the Ministry of Finance conduct calculations with them based on dollar estimates.

The dependence of exporters on the dollar exchange rate has not gone away, explains Andrey Kochetkov, a leading analyst at Otkritie Investments.

"The use of rupees, yuan and dirhams in payments for Russian exports does not negate the fact that the budget includes the parameter of the US dollar as a monetary unit of account. The problem is complicated only by the fact that, for example, the exchange rate of the rupee is as unstable as the ruble. That is, it cannot be used as an accumulation tool. Therefore, conversion into a more stable asset is required, the role of which is chosen by the Chinese yuan. In the process of conversion, if it does not happen instantly, exchange rate losses are assumed," he noted Andrey Kochetkov. He also added that exporters continue to count their losses and profits in dollars.

Doctor of Economics, Head of Financial Research at the Institute of Economic Policy. Gaidara Alexey Vedev emphasizes that the Ministry of Finance and commodity exporters benefit from the devaluation. The whole processing is at a loss, and the population is at a loss.

"As for exporters, they sell not only for rupees and dirhams. Dollars and euros are involved in the calculations. This, first of all. Secondly, I think the price of the transaction is simply also affected by the cross-rate," says Alexey Vedev.

Anton Tabakh, chief economist of the Expert RA rating agency, adds that the dirham is rigidly tied to the dollar, and the ruble exchange rate to the yuan and the rupee, even at direct auctions, is still formed taking into account their exchange rate to the dollar.

"The impact on oil workers is insignificant, their surpluses are quite effectively withdrawn. For other exporters, the weakening of the ruble is a plus if the prices for their exports do not fall," he estimated Anton Tabakh.

For whom they kept a strong ruble and what has changed

The author of the Ecworld tg channel calls the year, while the ruble was abnormally strengthening, a man-made and protracted "attraction of generosity."

"For many elites, the events that took place (February 24, 2022) came as a surprise. Insiders of these events in 2021 turned out to be only a narrow group of elites. There was a need to allow "their" to transfer rubles and ruble assets into currency at a comfortable exchange rate and withdraw abroad. Various instruments and currency restrictions were used for this," Ecworld is sure.

Alexey Vedev doubted the conspiracy theory. "I don't think so. Moreover, as far as I know, the Central Bank practically does not participate in interventions in the foreign exchange market, to my regret. I believe that the ruble exchange rate should be maintained in some corridor, not allowing it to strengthen excessively, as well as devalue," Vedev notes.

The events of this spring, when the sales of foreign exchange earnings by exporters have halved and the Russian budget is bursting at the seams, the non-economic mechanism for managing the exchange rate has turned sharply in the opposite direction.

One of the reasons for the devaluation, Professor Igor Lipsits believes, is that Western companies are leaving Russia, selling off assets in the jurisdiction of the Russian Federation. This means that the demand for the currency has increased.

"The budget is very interested in the devaluation of the ruble, but the Ministry of Finance cannot demonstrate this directly. But he has a cunning mechanism. This is a mechanism for allowing the sale of assets of foreign companies. This is a very interesting game. Behind the scenes, but very interesting. We have a huge queue of companies to exit Russia - two thousand applications. Taking into account the speed of consideration of applications, there is a queue for eight years. But if you wish, you can speed up the work a little and allow a slightly larger number of companies to withdraw their assets from Russia. Accordingly, more currency can be sold for this case and the Ministry of Finance, facilitating the exit of foreign companies from Russia, sucks the currency. A larger number of rubles is chasing a smaller amount of currency, the ruble is depreciating. And the Ministry of Finance, without declaring anything, can devalue the ruble due to this mechanism," says Igor Lipsits.

"It is quite possible that dollars and euros are being vacuumed in favor of foreigners selling their assets here. In short, the country is tense with the currency. And with what the tension is, it gets more expensive," the authors of the Money 24 TV channel also support this version.

And the Russians will get inflation

Inflation, which the Central Bank is struggling with, is the constant companion of devaluation.

"I think that in April the devaluation will be a significant factor in accelerating inflation. It is difficult to say exactly how much, because I assess the devaluation as rather a panic in the market. And I don't think that the rate will remain above 80-81 rubles per dollar. I think the dollar will bounce back. At this oil price, the dollar exchange rate should be around 70 rubles. But there is no doubt: in April, inflation will not decrease, but will accelerate, year by year, it will probably be above 7%," Alexey Vedev notes.

Olga Belenkaya, Head of the Macroeconomic Analysis Department at Finam, reminded: earlier, the Central Bank of the Russian Federation estimated that each movement of the exchange rate by 10% adds 0.5-0.6 percentage points to inflation, and this effect is realized on the horizon of 6-12 months.

"So far, inflation has reacted with restraint to the weakening of the ruble, and the inflation expectations of the population unexpectedly even decreased in March. However, the sharp acceleration of the ruble's weakening in recent days and the exit of the dollar above the psychological mark of 80 rubles per dollar can theoretically change both the expectations and the behavior of economic agents. First of all, this may affect the rise in the cost of imported goods and goods with a high proportion of imported raw materials and components (cars, household appliances, medicines)," says Olga Belenkaya.

"The observed devaluation increases inflationary risks and threatens to further limit the purchasing power of the population, which is negative primarily for consumer sector companies due to the prospect of new price hikes," adds Elena Kozhukhova, analyst at Veles Capital.

Pro-inflationary risks

Despite the fact that the current inflation rates are still restrained, nevertheless, the Central Bank of the Russian Federation considers the weakening of the ruble exchange rate to be the main pro-inflationary risks.

"A new pro—inflationary risk is the tightening of control over the transit and re-export of sanctioned goods to Russia, the threat of secondary sanctions against countries and counterparties accused of preventing the circumvention of sanctions. This may lead to a reduction in the supply of imported goods, and to an increase in logistics costs for their import, which will be transferred to consumer prices," Olga Belenkaya continues.

"The weaker the ruble, the stronger the pro-inflationary factors that the Central Bank is so worried about. However, the periods of weakening differ markedly from each other. The current situation is different in that we almost do not receive any signals from the regulator or other responsible persons regarding the exchange rate of the national currency. That is, if there is no concern about the weakness of the Russian, then such a rate does not cause concern and may be even lower. - adds Andrey Kochetkov. - Of course, inflation will not accelerate by the amount of weakening, but already today we can talk about the growth of inflationary expectations of the population, since they see the reflection of the exchange rate in their daily lives when shopping at grocery markets, in stores and other places of monetary exchange. Once accelerated, inflation becomes a difficult object to control. Therefore, the regulator's policy regarding the exchange rate requires consistency and certain red lines that no one draws today."

Key bet: the pause has dragged on

On the eve of the deputy chairman of the Central Bank Alexey Zabotkin said that with increased pro-inflationary risks, the regulator will assess the feasibility of raising the rate.

Alexey Vedev believes that the key rate will increase. "Perhaps it will be promoted. I think that the Central Bank will act carefully and 50 bp is the maximum," the economist believes.

"The next meeting of the Central Bank will be held at the end of April, by which time there will be a more relevant picture regarding the ruble exchange rate, inflation dynamics, inflation expectations, economic activity and budget policy. So far, there are more arguments for keeping the key rate at the current level of 7.5%, but the situation may change before April 28. Our forecast of the key rate at the end of the second quarter is 7.5-8%, at the end of the year — 7-8.5%," says Olga Belenkaya.

Will cash dollars disappear from exchangers?

What should ordinary citizens do when the Russian market is storming: is it necessary to buy a dollar that has become scarce at this rate and will the American currency disappear from the exchangers altogether?

"I think this issue is very complicated, because, in principle, the market is quite distorted now. And in general, both the dollar and the euro are quite toxic (given the fact that they can be frozen, anything can happen to them). But I don't see a shortage. And my advice is not to buy such an expensive foreign currency. The experience of last year shows this: when the dollar went from 120 rubles to the level of 60 rubles, and in periods the rate reached 53 rubles. Buying currency on peaks, on hysteria is a high probability of losing," advises Alexey Vedev and notes that the dollar and euro have become much less interesting to Russians.

"But business is probably experiencing a shortage of foreign currency liquidity, which could provoke a recent acceleration of devaluation due to limited supply in conditions of increased demand. In the case of the population, this problem may become relevant when citizens try to buy foreign currency in large quantities, but it should be borne in mind that restrictions in this context were introduced last year, and therefore such a scenario does not seem highly likely. - says Elena Kozhukhova. "At the same time, the demand for various currency financial instruments may increase both in banks and on the stock exchange, but it is worth remembering the risks of new sanctions restrictions in foreign exchange transactions and the relevance of investment diversification."

Will the strong ruble return?

On Thursday, when the dollar broke through the mark of over 82 rubles (euro - above 90 rubles), Russian Finance Minister Anton Siluanov said that the ruble would tend to strengthen.

The minister outlined the trend, and experts still see the risks of further weakening of the ruble with immediate goals up to 83-85 rubles per dollar (90.5-93 rubles per euro).

Elena Kozhukhova notes that a strong oversold Russian currency and possible verbal interventions of financial regulators can play a role in these values.

"It is possible that if devaluation trends persist, the Central Bank of the Russian Federation will raise the interest rate at its meeting on April 28 in order to curb inflation, but even this step in the current economic conditions may have a limited impact on the ruble. At the moment, it is difficult to say which factor will put an end to the collapse of the ruble, and therefore, in the short and medium term, it will be relevant to store part of the savings in foreign currency or other protective instruments to limit the effect of devaluation. In the future, as the Russian economy adapts to lower oil and gas revenues and the likely tightening of monetary conditions, the ruble may return to strengthening," the analyst of IC Veles Capital summed up.

"By and large, the specific value of the ruble exchange rate in the range of 80 and above no longer makes sense. The main thing in the market is communication and relative predictability. The lack of landmarks causes distrust. Therefore, the course can be any. - says Andrey Kochetkov. - For exporters, it does not make much difference what the exchange rate of the domestic monetary unit is, if they can conduct their cash flows in foreign currency. The situation in 2022 was different in that exporters were required to sell 100% of their revenue and store their temporary or permanent funds in rubles. Accordingly, if it is possible to do this in a more stable currency, then they lose interest in maintaining the stability of the domestic currency. Domestic businesses and consumers are primarily interested in the stability of the ruble."

Key exporters and the main breadwinners of the state treasury - sellers of oil and gas - occupied almost 60% of the share of exports by the end of 2022. But after February last year, the paradise life for them ended.

Novye Izvestia asked experts: how will the rising dollar affect oil and gas (taking into account the redirection of flows to Asia, calculations in rupees, yuan and dirhams, the price ceiling and discount on Russian oil), if the Federal Tax Service and the Ministry of Finance settle with them based on dollar estimates.

"A new pro—inflationary risk is the tightening of control over the transit and re-export of sanctioned goods to Russia, the threat of secondary sanctions against countries and counterparties accused of preventing the circumvention of sanctions. This may lead to a reduction in the supply of imported goods, and to an increase in logistics costs for their import, which will be transferred to consumer prices," continues Olga Belenkaya.

Alexey Vedev believes that the key rate will increase. "Perhaps it will be upgraded. I think that the Central Bank will act carefully and 50 bp is the maximum," the economist believes.

What should ordinary citizens do when the Russian market is stormy: is it necessary to buy a dollar that has become scarce at this rate and will the American currency disappear from the exchangers altogether?

"I think this issue is very complicated, because, in principle, the market is quite distorted now. And in general, both the dollar and the euro are quite toxic (given the fact that they can be frozen, anything can happen to them). But I don't see a shortage. And my advice is not to buy such an expensive foreign currency. The experience of last year shows this: when the dollar went from 120 rubles to the level of 60 rubles, and in periods the rate reached 53 rubles. Buying currency on peaks, on hysteria is a high probability of losing," advises Alexey Vedev and notes that the dollar and the euro have become much less interesting to Russians.

"It is possible that if devaluation trends persist, the Central Bank of the Russian Federation will raise the interest rate at its meeting on April 28 in order to curb inflation, but even this step in the current economic conditions may have a limited impact on the ruble. At the moment, it is difficult to say which factor will put an end to the collapse of the ruble, and therefore, in the short and medium term, it will be relevant to keep part of the savings in foreign currency or other protective instruments to limit the effect of devaluation. In the future, as the Russian economy adapts to lower oil and gas revenues and the likely tightening of monetary conditions, the ruble may return to strengthening," the analyst of IC Veles Capital summed up.