On Tuesday, March 10, trading on the Moscow Exchange opened with a weakening of the Russian currency. At the beginning of the session, the dollar rose by 6.4% to 72.99 rubles, and the euro - by 9.6% to 85 rubles. However, in the middle of the day the values fell to 70.9 and 80.5 rubles, respectively.
After the end of the holiday weekend, the Central Bank raised the official dollar exchange rate on March 11 by 4.5 rubles to 72.02 rubles. In turn, the official euro exchange rate increased by 6 rubles to 81.86 rubles.
The sharp depreciation of the national currency started the day before. Although trading on the Moscow Exchange was not held on March 9, the dollar rose on the international Forex market by 9.5% and for the first time since March 2016 exceeded 75 rubles. The euro exchange rate added 11% and reached 86 rubles. The last time a similar indicator could be observed back in February 2016.
The main reason for the negative dynamics of the ruble was the most massive collapse in world oil prices since 1991. At Monday's auction, the cost of raw materials of the Brent benchmark fell by 31% to $ 31.29 per barrel, and quotes of the American WTI brand fell by 33% to $ 27.4 per barrel.
Prices fell after the failure of the negotiations on the OPEC + deal. Amid falling global oil demand due to coronavirus, participants, including Russia, tried to coordinate an additional reduction in raw material production in order to stabilize the market situation. Meanwhile, on Friday, March 6, following the results of the meeting, the parties did not reach consensus and decided to completely abandon all obligations undertaken earlier.
“The Russian side proposed to extend the agreement on existing terms at least until the end of the second quarter, in order to better understand the situation with the influence of coronavirus on the world economy and oil demand. Despite this, OPEC partners decided to increase oil production and fight for market share, ”said the statement by the head of the Russian Ministry of Energy Alexander Novak on the government’s website.
According to him, a possible increase in oil production by Russia will depend on the plans of national companies. At the same time, in April, Saudi Arabia intends to increase production of raw materials up to 10 million barrels per day, and, if necessary, up to 12 million barrels. Moreover, Riyadh has announced record 20-year oil discounts for all its customers.
“The collapse in oil prices is due to the fact that the OPEC + deal was not just terminated, it was essentially collapsed. Moreover, investors' concerns were caused by the fact that the Saudis, by introducing a discount on their oil, actually declared Russia a price war, ”said Narek Avakyan, Head of BCS Broker Investment Department, RT.
At the same time, Saudi Arabia itself does not consider the current state of affairs as the beginning of a price war. This was reported by a source in OPEC to the TASS agency.
"It is not true. We in Saudi Arabia do not intend to wage any wars with Russia. On the contrary, Russia is still a very important partner for Riyadh and the most important player in the energy market, ”he stressed.
It is noteworthy that on March 10, oil prices stopped falling and began to recover moderately. Thus, Brent crude increased in price - by 9.2%, to $ 37.5 per barrel, and the cost of WTI varieties increased by 10%, to $ 34.2 per barrel.
“Initially, the drop in oil was emotional. Now experts are beginning to study the situation and come to the conclusion that new wars in the oil markets will not be too long, and neither side is interested in prices staying at such low levels, ”said Alexey Korenev.
Anticipation game
Amid uncertainty in the oil industry, the Central Bank has already announced special measures to maintain the ruble. In particular, on March 10, the Central Bank began proactive sale of foreign currency in the domestic market.
“This decision was made in order to increase the predictability of the monetary authorities and reduce the volatility of financial markets in the face of significant changes in the global oil market,” the Central Bank said.
The Central Bank emphasized that they are monitoring the situation in the financial market and can use additional tools to maintain financial stability. In addition, the regulator also announced the provision of additional cash to the Russian banking sector.
“Taking into account the fluctuations in the exchange rates and prices of financial assets on Monday, the Bank of Russia considered it appropriate to hold a fine tuning repo auction in the amount of 500 billion rubles today, March 10, 2020,” the Central Bank noted.
In conditions of fluctuations in the foreign exchange market, the actions of the Central Bank should support the work of credit organizations. This was told by RT analyst at Finam Group of Companies Alexey Korenev.
“REPO is a kind of loan replacement, only more simple in technical terms. The essence of these actions of the Central Bank is to ensure that none of the major players in the banking sector experiences a shortage of cash, because against the backdrop of a panic, an outflow on deposits may well begin. Many of the lending institutions will need support from the regulator. Therefore, an increase in REPO auctions is quite natural in this situation, ”said Korenev.
- Journalists gather near screens showing currency exchange rates, share price index and other information in the office of the Moscow Exchange in Moscow, Russia March 10, 2020. REUTERS / Shamil Zhumatov
- Reuters
- © Shamil Zhumatov
In general, today, analysts differently assess the prospects for further dynamics of the Russian currency. As QBF Investment Advisor Alexei Korolenko told RT, in the near future, the market situation will continue to depend on changes in oil prices, and the dollar will fluctuate over a wide range of 70-80 rubles.
At the same time, according to Alexei Korenev, the actions of the Russian financial authorities will mitigate the impact of commodity quotes on the ruble. According to the analyst, as a result of the policy of the Central Bank and the Ministry of Finance in the near future, the dollar and euro rates can stabilize at levels of 70 and 80 rubles.
Exchange descent
On the first working day after the holidays, a serious collapse occurred on the Russian stock market. At the beginning of trading, the Mosbirzhi index fell by 10.4% - to 2436 points, and the RTS index - by 16%, to 1056 points. Meanwhile, in the afternoon, the pace of decline slowed down and indicators managed to recover to 2635 and 1169 points, respectively.
In the middle of the day, the leaders of the fall were mainly securities of oil and gas companies. Thus, the value of LUKOIL shares decreased by 11.7%, Rosneft - by 11.5%, Tatneft - by 8.9%.
Meanwhile, the drop in stock quotes was less significant than experts expected. According to Alexei Korenev, the absence of trading on Monday, as well as statements by the Central Bank and some recovery in oil prices on Tuesday softened the depreciation of Russian stocks.
“The fall of the Mosbirge index could actually have been much more severe yesterday, but it was lucky that Monday was a day off. Due to this, we “sat out” all the worst. If you look at how American, European, Asian and commodity markets dived, we managed to skip these lows, ”said Alexey Korenev.
On March 9, trading on exchanges in Asia closed with a collapse of stock quotes - by 3-7%, in Europe - by 7-8%, and in the USA - by 6-7%. At the same time, in the United States against the backdrop of a sharp collapse, securities trading had to be temporarily suspended. This happened for the first time since the global financial crisis.