Russia’s currency, the ruble, has been declining all week. At noon on Friday, the dollar was trading at 83 rubles and the euro at 91 rubles. These are the ruble’s lowest values since last spring, when Russia’s invasion of Ukraine had just begun. At that time, the currency market was in full swing, the dollar soared to 130 rubles, and exchange rate fluctuations he reached 10% per day.
There are far fewer causes for concern now. After OPEC+’s decision to cut production, Brent oil prices climbed to $85, a comfortable price for Russia. Even as sanctions hit Moscow’s fuel revenues, Russia’s trade balance still looks decent.Russian oil has won new customers in China, India and Turkey.
So what’s behind the ruble’s plunge? As always, exchange rates are affected by many factors. Export and import trends, tax year end, foreign companies selling assets in Russia, interest rate differentials set by the Federal Reserve and the Russian Central Bank, Treasury Ministry rate cuts for currency selling, etc. We will not delve into these technical details, but rather focus on the general scope of the situation.
The first thing worth mentioning is that
The dollar has strengthened even though its depreciation has accelerated in recent weeks since the autumn when the exchange rate was 60 rubles. The ruble has lost almost 40% of its value since September.
What we are seeing now is a return to roughly equilibrium levels after a period of unnaturally strong ruble.
Last summer, a combination of unexpected export earnings and a complete collapse in imports left the market oversaturated in currency. Both factors subsided as the year drew to a close. While the EU has imposed embargoes and price caps on Russian oil, imports have rebounded due to supply through “friendly countries.” Trade flows have picked up and the ruble is once again affected by the same indicators as before.
There is one important caveat. After the 2022 financial crisis, the ruble is currently trading in a “thin market”. This means that the number and volume of currency transactions has increased significantly. Dropped And now even small changes in supply and demand can have a large impact on exchange rates.
The number of dollar trades on the Russian stock exchange is shrunken It is increasing at a pace of 2-3 times from the beginning of 2022. There are few non-residents left in the country and it once had a great influence on the market.The share of export payments in dollars and euros is Made a contract From 87% to 48%, this niche was filled in rubles and renminbi.
There are practically no foreigners in the market, but a growing share of trade is conducted in renminbi. There is virtually nowhere to get “toxic currencies” (dollars and euros, of course). The market has become shallow and its liquidity has decreased many folds.
At that time, the Russian oil giant Rosneft buy 625 billion rubles (7.06 billion euros) worth of foreign currency plunges the exchange rate. Since then, the ruble has become much shallower, and today, much less important news can trigger a plunge.For example, the current round of devaluation is cause It follows a recent deal by Shell to sell its stake in the Sakhalin 2 oil and gas development project worth 95 billion rubles (1.07 billion euros).
In fact, this is not the only deal involving a capital withdrawal.Russian Foreign Investment Commission coming soon green light Sales of Hyundai and Volkswagen businesses in Russia.In total, about 2,000 Western companies Queue Withdraw from a country full of sanctions. Naturally, they all want to withdraw the money raised from these sales abroad.
Shell development reveals a new nature of the Russian currency market. Another sign is the growing reliance on the renminbi.China’s national currency most traded Two months in a row on the Moscow Exchange. The Russian Ministry of Finance conducts its fiscal regulation currency transactions in RMB and the Central Bank keeps 60% of its reserves in RMB.
If this renminbiization continues at its current pace, Russians will soon have to forget about the dollar and switch to the Chinese currency rate.
However, despite the renminbi being a “friendly” currency, not all is calm. Capital flows are restricted in China and the exchange rate is effectively under government control. Therefore, most free-choice central banks choose not to store reserves in RMB.
Experts now agree that there is no reason for the ruble to continue depreciating rapidly.Oil prices will remain high in April, but national oil and gas revenues return In particular, it will be lowered to the baseline level (used to draft the national budget) in May as the Ministry of Finance will start calculating discounts on Ural oil under a new formula.
On the other hand, some things remain the same: Russia’s budget is still outmatched by the gradual depreciation of the ruble. Therefore, returning at least 75 rubles to the dollar can be seen as a largely favorable scenario for Russia.
