Someone doesn't like a strong ruble …
There has not been such a low dollar exchange rate as it is now in Russia for five years. Financial stability, based on tight monetary policy, together with unwilling to fall in oil prices, support our national currency. At the same time, unprecedented sanctions pressure does not stop on it. It seems that the ruble is being held largely due to the fact that in the fall of 2014 it was lowered so much that there was simply nowhere else to go.
US President Donald Trump and Fed Chairman Jerome Powell.
However, the full potential of such pressure seems to have been exhausted. Even not the strongest Russian banks have learned to somehow manage without foreign borrowing. Those who have not learned, either have lost their Central Bank license, or are under reorganization. It turns out that pressure on the ruble from abroad is now possible only by refusing to buy Russian securities. The West is simply not capable of doing anything else.
As a result, America, together with Europe, seems to be trying to follow the path of all kinds of prohibitions and restrictions, but it is not so easy to prohibit buying what brings high and, moreover, guaranteed profits. Nevertheless, it is not necessary to say that we do not care. Yes, they continue to assure us from the high rostrum that the Russian economy has managed to adapt to the sanctions, but it still feels very acutely the negative consequences of the contraction of the financial and banking system.
According to Bloomberg experts, this takes about 0.4-0.6 percent of our GDP. Still, much greater losses in officially tracked volumes of production and services are associated with the fact that the shadow and gray sectors of the economy are growing again, as well as the degree of its offshorization. In addition, the position of the ruble, which is already beginning to seem too strong to many, may well be undermined from within.
Not so long ago, the Bank of Russia announced that it was preparing the most significant cut in the key rate in recent years. And no matter what officials and experts say about the fact that the key rate has long determined little in real finance, this will inevitably lead to a sharp reduction in the cost of credit resources in the country. The banking sector can be sad about this as much as necessary, the profitability and attractiveness of OFZs will, of course, fall, but the real sector of the economy and ordinary citizens will certainly feel better from the reduction in the cost of loans.
The dynamics of the key rate of the Central Bank of the Russian Federation has not looked scary for a long time.
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However, the rate at the Central Bank will be dealt with a little later, and now many are anxiously awaiting the meeting on the monetary policy of the Central Bank of the Russian Federation, which is scheduled for Friday, July 26. A number of experts do not exclude that its results will become a kind of signal for the ruble to turn towards the depreciation of the exchange rate. But those who are actively investing in ruble assets today may be disappointed.
Another serious risk for the Russian currency may be a measure that is often called technical in our financial institutions. We are talking about the notorious "budget rule" that cuts off excess oil and gas revenues. And although on July 26 the cut-off bar is unlikely to be raised, if the Central Bank only hints that this is possible, the ruble may immediately lose not shares, but whole interest rates at the exchange rate.
At the same time, active purchases of foreign currency by the Bank of Russia continue to restrain the rate of strengthening against the dollar gained by the ruble. Up to the exchange rate mark of 60 rubles. The ruble is unlikely to strengthen further. The main thing is that the Central Bank is still free to buy currency for the Ministry of Finance. In general, the Central Bank of the Russian Federation now actually finds itself in a somewhat strange situation, when with its own hands it must refute its own decision to weaken currency controls.
According to opposition analysts, such a decision could completely deprive the Russian budget of dollar earnings. But inside the country, the ruble will continue to be in demand, otherwise it is quite difficult for the same exporters to get not the most expensive ruble for the dollar.
And yet there are those who predict our currency will fall to 69 rubles per dollar by the end of the year. And if this ruble exchange rate had been appointed by someone else, and not the best forecaster according to Bloomberg, Bank Polski currency strategist Yaroslav Kosatyi, there would be no need to worry. But if earlier Kosaty had absolutely accurately predicted the growth of the ruble in the second quarter of 2019, now he has become a pessimist about the prospects for the Russian currency.
Interestingly, the Polish expert connects his bad forecast with the prospect of a strong rate cut by the Central Bank. Now the high rate of the Central Bank of the Russian Federation (7.50% per annum) supports the interest of foreign investors in Russian securities, and if it decreases, it is necessary to wait for an outflow of foreign investments in Russian federal loan bonds (OFZ).
In June 2019, the volume of investments by foreign investors in Russian bonds, according to the Central Bank, reached 30%. If, under the pressure of new US sanctions, investors begin to massively dump our OFZs, the situation may turn out to be such that there are simply no buyers for them. With such a local default, only the agreed purchase of securities at a cheap price by the largest Russian banks, which in this case are forced to violate all the high standards of the Central Bank of the Russian Federation, can save.
… and for someone - a strong dollar
Generally, while among analysts, those who are optimistic about the ruble remain in the majority. Albeit with a slight margin. But with regard to the dollar, the majority have a rather pessimistic attitude. Cold reconciliation with China is again driving American foreign trade into a dead end - it is again unable to cover the negative balance, and the US Federal Reserve simply has no other option but to play against the dollar.
It cannot be ruled out that in the same majority of pessimists there are quite a few of those who deliberately complain about the bad prospects of the American currency. And not even free. However, the beginning week may not be easy at all not only for the ruble, but also for the dollar.
Already on Wednesday, July 24, the first data on the direction in which the foreign trade balance in the United States is changing will become known. The published numbers could be another point for plotting a graph that will show how the magnitude of the excess dollar appreciation depends on the real prospects for victory in Trump's trade wars.
On Friday, preliminary data on US GDP for the second quarter will be released, which will certainly be perceived in the same vein. But the most expected information at the end of July is the data of the semi-annual financial statements of the largest corporations, most of them transnational. They are in the trade wars started by Trump, calmly to themselves are at once on both sides of the front.
The leaders of the IT industry and related industries feel especially comfortable in this regard. Remember the situation with Huawei, which seems to be uniquely Chinese. But she turned out to be so tied up with all other IT corporations that, by hitting her, the Trump administration fell into the position of the very non-commissioned officer's widow who whipped herself.
Transnational giants successfully operate with all possible currencies with minimal restrictions, and the fact that, by all indications, the dollar's dependence on other currencies will only grow, does not bother them at all. They even turned cryptocurrencies into network surrogates for the same dollar long ago, which can be judged at least by the offers of buying, selling, and selling bitcoin and others like it on the Internet. Minimum margin, exchange rate consistently denominated in dollars, lowest commissions, and virtually no bureaucracy. Need more proof?
Nevertheless, the signal for the “green” exchange rate correction to resume, or, more precisely, to continue, it seems, will be given just now. But this will only happen with very poor corporate reporting. In all other scenarios, and the most probable is now considered moderately negative, nothing will change dramatically. And someone will have to wait for a real pullback of the dollar again. Perhaps even a very long time.
But in principle, the Trump administration, together with the Federal Reserve, seems to be trying to achieve exactly that, so that the dollar has rolled back enough at least once. It is not for nothing that the head of the Federal Reserve, Jerome Powell, with enviable regularity makes quite "transparent hints" that the American currency is very overheated. Nevertheless, the dollar, in any case, does not seem to be able to significantly decline. To begin with, all the threats of the Europeans and OPEC to abandon payments for oil and gas in dollars remain threats. And the point is not even that you can run into sanctions.
The benefits are too dubious, and claims for some kind of independence are clearly not justified. Well, the costs that may be required to translate such an idea into reality can hardly be compared with the ghostly profit, which, moreover, will not be direct, but indirect. It is clear that numerous buyers of American weapons, Latin American satellites, and, of course, the drug mafia will immediately rush to help the dollar. And most importantly, China will be the first to secretly but purposefully work to keep the dollar from falling.
The CCP, at its plenums and conferences, will continue to stigmatize the imperialists and circulate reports on the victory in the trade war with "the villainous Trump and his clique." Meanwhile, the People's Bank of China will quietly buy exactly as many dollars as is needed to maintain an acceptable balance both in foreign trade and in the budget. And if something happens, it will be possible to conclude a couple of dozen long-term agreements with OPEC countries and Russia for future oil and gas supplies. Of course, not in yuan and rubles, but in dollars. And this, of course, will again support the Russian ruble.
Author: Alexey Podymov