How did the Russian ruble rise again and return to its pre-sanctions level?

Moscow -

The Russian ruble suddenly and quickly rebounded, and reached the level before the recent Western sanctions at a rate of 75 rubles against the dollar and 81 against the euro, after it fell historically and unprecedented on last March 10, and crossed the barrier of 120 rubles against the dollar and to 132 against the euro.

The discussion is currently revolving largely in blogs and forums about that the ruble may reach 40, 50 or 60 per dollar, and economists attribute this to low imports, tight state control over capital, international restrictions on investment, and expectations that Russia's current account surplus will reach to a new record high in 2022.

The decline in the exchange rate of the dollar against the Russian ruble by almost 40% raises questions about the reasons for this strong recovery of the ruble, and the possible prospects for hard currency rates against it.

And all this is taking place against the background of bilateral restrictions, while Western countries are setting up comprehensive barriers to the Russian economy and the Russian financial authorities are taking countermeasures to achieve stability in its financial system. On individuals, but also on companies.

Restrictions were also imposed on withdrawals and cash transfers abroad, in 2021 more than 16 billion dollars and about 8 billion euros were brought into the country.

In the context of a complete ban on the import of dollar and euro banknotes by the United States and the European Union into Russia, it is likely that the measure of the Russian Central Bank was taken in response, aimed, among other things, at reducing the risk of the formation of a black market for foreign exchange, taking into account Historically, hard currency - particularly the dollar - has been the preferred currency of Russian citizens to preserve capital in a turbulent economic environment.

Moreover, the mandatory sale standard for export earnings has been raised to 80% for all foreign trade agents.

According to official estimates, the supply of foreign currency in the market has increased as a result of these measures to $1.5 billion per day, which is critical given the 35% drop in currency trading volume in March.

In addition, the ruble payment mechanism for Russian gas was a vital engine for the ruble's recovery.

decompression procedures

To the list of reasons can be added the suspension of the application of the "budget rules", which led to the transfer of surplus profits from the sale of oil to the National Wealth Fund of the Ministry of Finance, through the purchase of foreign currencies from the market.

With the continued rise in the prices of raw materials in the world markets and the formation of additional resources inside the country, the pressure on the ruble exchange rate stopped almost abruptly.

It is noteworthy that among the emergency measures taken by the Russian government to confront the collapse of the ruble, non-residents were isolated from the stock market, a ban on their rights to their securities, interest payments on shares and bonds were restricted, and the “burden” of sales of foreign participants was excluded, despite the fact that Their share in the free circulation of securities remains between 60 and 80%.

In addition, the ban on the payment of coupons and debt assets on Eurobonds of the Russian Federation came from the foreigners themselves and also from the US Treasury, which means that there will be no significant outflow of capital from the state, which previously amounted to tens of billions of dollars. dollars.

Harmful beneficial Lord

The factor related to the cessation of tourism should also be mentioned, as the failure of the Corona crisis in the industry was replaced by a geopolitical failure. In March 2020, the global industry collapsed by 60%, and the percentage of tourist travel reservations constituted 5% of last year's rates.

The closure of the skies of the European Union, the United States of America and a number of Asian and Pacific countries to Russian aircraft, the impossibility of cashless payments in the countries imposing sanctions, as well as the high cost of airline tickets led to a decrease in the demand for foreign currencies and a decrease in its transfer abroad.

The role of friendly economies

In this context, it is referred to the restrictions imposed by the West on products supplied to Russia, and accordingly, imports to Russia collapsed last March by 50%, and the machinery and technology industry sector has declined at the present time by 70%, and consumer goods have lost more than a third of the average its monthly rate.

For this reason, the reduction in the import of goods and services has reduced pressure on the ruble, with expectations of a recovery in imported goods year after year due to new markets from "friendly" economies.

In sum, against the background of continued strong exports from Russia and “pent-up” imports from sanctioning countries, a unique situation has arisen in Russia that may represent a great opportunity to break the historical record of trade surplus and balance of payments in 2022, which in turn may lead to the protection of the ruble .

temporary recovery

On the other hand, observers believe that the relaxation of internal control over foreign exchange by the Central Bank may have an impact on stopping the strengthening of the ruble, and that one of the important factors that can stop the strengthening of its price is the decline in energy prices, in addition to the decrease in the volume of raw materials purchases by “countries.” Unfriendly", which accounts for about 70% of Russian exports.

However, in light of the persistent shortage of energy resources, the last factor in strengthening the national currency is still of a secondary nature, in addition to the fact that this recovery may be temporary and under circumstantial considerations, according to economic analyst Alexander Botavin.

Butavin believes that the ruble can recover if the excess supply of foreign currency in the market declines and capital restrictions are not removed.

He adds that for some time the ruble exchange rate can actually appreciate, albeit in order to ease the psychological discomfort of ordinary citizens and curb inflation, but he does not rule out that the dollar will fall significantly below the 80 mark against the ruble.

He concluded that the next three months could be favorable for the ruble if capital controls remain in place and broad restrictions are not imposed on Russian energy exports.