The ruble strengthened against the dollar by 50% from the low in early March. The Russian currency has mainly appreciated since the beginning of April, when the growth of export earnings from energy carriers accelerated and imports fell. The volatility of the ruble against the dollar remains high – at the end of the week it exceeded 60% compared to 20% for other currencies of developing countries.
Our latest target for the ruble is ₽70/$, and in the previous review we allowed it to strengthen to the range of ₽60-65/$. Certainly, with such expensive oil and severe restrictions on the movement of capital against the backdrop of high export earnings, the ruble can strengthen to any value, but the Central Bank of Russia will not allow this, so as not to damage the economy.
The dynamics and volatility of the dollar against the ruble over the past couple of weeks is similar to the situation in March, and in many ways, as in March, the ruble is strengthening thanks to exports. There is a sharp drop in demand (bid) for the dollar, in March it was generated by Russian subsidiaries of foreign banks, which had to close long ruble positions against the dollar.
At the same time, proceeds from energy exports continue to grow rapidly and, according to our estimates, exceed $1.7 billion per day, of which $1.4 billion is converted into rubles, i.e. 80%. Also recently there has been a sharper reduction in imports and a drop in demand for foreign currency.
We have repeatedly pointed out that the current exchange rate (below ₽70/$) is unfavorable for our government, even with such high oil prices, which are largely due to the short-sighted policy of the European authorities, which jeopardize global energy security.
In the current non-market conditions, due to Western sanctions, a strong ruble will not be able to either contain inflation or act as a driver for the growth of imports for obvious reasons – inflation will be affected by a decrease in demand due to falling incomes of the population and rising prices – due to a reduction in imports due to sanctions.
Thus, a strong ruble is more likely to harm the economy, and therefore its strengthening should be restrained.
The first thing to do is to reduce the standard for the sale of export earnings from the current 80% to at least 50%, but this will not help much either, since exporters will not be able to sell more than 40% of the currency in fact.
In addition, it is necessary to create demand for foreign currency among the population and companies, increase the current limit on cashing out funds from foreign currency accounts from $10,000 per month at least two to three times, and remove other restrictions.
Therefore, we expect the authorities to more decisively and effectively remove restrictions on the movement of capital in the near future, since with such a course the budget loses unrealized export earnings.