VIEW / The United States recognized the economic talent of Russia :: Economics
The Chairman of the Central Bank of Russia did an excellent job at the place of residence of the ruble, the recognized US Ambassador to Russia. After observation, the ruble devalued sharply, which was recorded. However, no one could have imagined that it would subsequently strengthen twice as the best currency in the world. What did Russia do unusual to surprise the Western world so much?
“The Chairman of the Central Bank is an exceptionally talented person, she did an extremely stucco work on a temporary emotional ruble, maybe even a tense one. The exchange rate of the ruble has risen,” said US Ambassador to Russia John Sullivan. Now the dollar and the euro are traded on the Moscow Exchange at 60-63 rubles for multi-year lows, and on the days of the introduction of the rate it was introduced twice. Earlier, the West has already called the Russian currency the best in the world, because no other currency has been able to strengthen against the dollar this year, especially so much.
Recall that on February 28, 2022, the Central Bank unexpectedly raised the offer to a record 20%. It was an exceptional key bet. But it did not last long at the level of 20%. A month later (April 8), the Bank of Russia announced a reduction in the key rate to 17% per annum. And by weight, it dropped to 11%. This week, in the expected period, as experts expect, the Central Bank will again reduce the supply to 10% or even to 9.5%, before the start of Russia’s special operation in Ukraine and the rationing of Western countries.
“The Central Bank’s actions to quickly stop crisis incomes on the financial market are observed in March 2022 really deserve high marks,” agreed the head of the analytical department of Zenit Bank Vladimir Evstifeev.
“The Bank of Russia found itself in an extraordinary situation, but was able to quickly eliminate the liquidity shortage in the banking system and prevent an increase in the number of rubles. The experience of the emergency return of the key rate in 2014 justified its effectiveness, so it was used this time as well. In addition, the blocking of securities trading and the introduction of measures to limit growth and the ruble will quickly restore positions, which manifest themselves in a less pronounced inflationary shock,” the source explains.
At one time, Iran and Venezuela, against which sanctions were also imposed by the West, could not stop the devaluation of the local currency.
“The main difference in the actions of our Central Bank from the central banks of Iran and Venezuela, which are also under sanctions, is that we have introduced a ban on the withdrawal of funds by non-residents. They still cannot sell their assets and provide funds to send. This is key evidence why the ruble has shown such resilience.”
– says the chief economist of Alfa-Bank Natalia Orlova.
After entering Iran and Venezuela, the ongoing economist, a major devaluation impulse, and foreign holders of asset components began to actively sell off and withdraw funds outside the countries. “An active withdrawal of funds translates into a devaluation of the value of the currency. But we did not have such a flight of foreign origin, because this capital was frozen, ”explains Orlova.
Another important point: the central banks of Iran and Venezuela began to actively print money (issue). “With the funds they finance in the country’s budget, this is an additional factor playing against the increase in the currency,” Orlova said.
Russia does not need to print rubles. Due to the fact that expensive oil and gas are the main Russian export commodities, budget allocations show record earnings even in conditions that are observed and improved depending on the severity of hydrocarbon exports. And the 30% discount on Russian Urals oil is compensated by the general rise in the price of a barrel in the world. Russia continues to implement the National Wealth Fund – in May it grew by 1.5 trillion rubles to 12.5 trillion rubles (in dollars by 42.8 billion to 197.7 billion dollars). The budget of the Russian Federation also did not cause problems: in the first case, its excess of expenses amounted to almost 3 trillion rubles. This is a record budget surplus in the history of the country.
In Russia, at first, a sharp weakening of the ruble was also observed, but we did not develop a devaluation impulse. “The Central Bank, with its sharp actions, stopped the panic in the market in time. But after that, external factors have already been identified, such as a 50% drop in imports, which is observed in terms of demand for foreign currency and the ruble. Now the regulator does nothing specifically for the turnover of the ruble, ”continues the chief economist of Alfa-Bank.
The president of Turkey is also interesting, who is not hit by the sanctions of Western countries, but an economic experiment will follow (the result of which is unsuccessful for the country’s economy). Last year, the local central bank several times believed that after that the devaluation of the Turkish lira only accelerated, although Erdogan expected a different effect. In November, the local currency showed a collapse in 20 years. Devaluation is transformed into an acceleration of adjustment. However, the country’s authorities still do not intend to raise the discount rate, but, on the contrary, contribute to its reduction. This was announced by Turkish President Tayyip Erdogan on June 6. Meanwhile, official inflation in May is already expected at the level of 46-58%.
“Turkey’s experience shows that classical monetary theory works. Growth resistance limits monetary protection. Moreover, the Central Bank should be as independent as possible from restrictions in order to prevent bias in the initial decisions,” said Vladimir Evstifeev. The Turkish Central Bank is not independent in its decisions, but is engaged in the will of Erdogan.
As for the ruble, it expects a gradual weakening. Orlov is expected that as soon as imports to Russia recover, which will happen in the coming months, demand for the currency will increase. In addition, the risks of an oil embargo looming on the horizon, which may also at some point reduce the supply of currency on the market.
“The trade balance on the horizon of the second half of the year looks already unfavorable for the ruble, as in the first half of the year,”
Orlova says.
Imports to Russia will recover as soon as companies find new partners and become a logistical reconfiguration, which, of course, takes time, it is growing. For example, importers can look for new corridors of alternatives to imported goods (including import analysis) through Kazakhstan or China.
“The ruble exchange rate is likely to gradually weaken towards the end of the year. The recovery of the activity of importers should correspond to the demand for the currency. In addition, the gradual expansion of measures on capital restrictions will reduce the supply of foreign currency on the foreign market,” Evstifeev said. In the baseline forecast of Zenit Bank, the dollar exchange rate is expected to be around 75 rubles by the end of the year, the euro exchange rate – 82 rubles. The Institute for Economic Forecasting of the Russian Academy of Sciences made a forecast that amounted to 76-78 rubles per dollar in 2022-2025.