Geopolitics shakes the ruble. And she shakes him at the most inopportune time. In conditions when the ruble, on the contrary, needs to gain strength before future trials, it is weakening. The rate has already reached about 79 rubles per US dollar and 89 rubles per euro. There is little doubt that these levels will also be overcome.
Photo: Arden Arkman/Novaya
But first, about the fact that the government did not count on such a weakening of the ruble. The proof of this is simple and very clear: according to the official forecast of the socio-economic development of the Russian Federation for 2022 and for the planned period of 2023 and 2024 in its base version, the average annual exchange rate of the US dollar should be 72.1 rubles this year. Compare this forecast with the current rate, and it will become clear how far the current reality is from official forecasts.
Opponents will object: they say, it is still possible, that the US dollar exchange rate will fall to 60 rubles, and on average for the year a figure close to the official forecast may come out. Well, then let's conduct a kind of factor analysis, try to assess the prospects for the ruble from the point of view of what will determine its strength (weakness) in the foreseeable future.
The first factor is, of course, that today the ruble has weakened so much: geopolitics. More precisely, not the aggravation of the geopolitical situation as such, but the threat of new anti-Russian sanctions. It has already been said many times from the other side that these could be very difficult economic sanctions for the Russian side.
I don’t even want to assume that these could be sanctions. One thing is clear: the ruble from them will be bad. So he reacts proactively to the mere threat of these sanctions.
This is normal for a currency.
The second factor is world oil prices. In recent years, this factor, along with sanctions, primarily determined what is happening with the ruble exchange rate. But here (I want to breathe a sigh of relief), everything seems to be fine: world oil prices are high — about 90 US dollars per barrel. High, but pay attention, even such high oil prices cannot contain the current fall of the ruble due to the aggravation of the geopolitical situation. Oil — our everything — has always helped the ruble, but today, alas, it is powerless. And this is a bad sign.
Maybe the price of oil will grow even more and help the ruble? This may be. But still, the probability that the price will start to decline soon enough is much higher. “Soon enough” is from a few months to one or two years. And this is quite a foreseeable prospect.
What the decline in world oil prices will mean for the Russian ruble, I think, is clear: this will push it to an even greater fall. The decline in oil prices should be expected for the following reason.
The fact is that the initial phase of the so-called energy transition, a global process that means a serious reduction in the consumption of traditional fossil hydrocarbons (primarily coal and oil) by the world economy, will end soon enough. For Russia, whose economy is based on extractive industries, this means a strong decrease in export earnings, which depreciates the national currency.
However, in the initial phase of the energy transition, which coincided with the active recovery of the global economy after the collapse caused by the COVID-19 pandemic, hydrocarbon prices, on the contrary, are growing. Effective demand for raw materials is significant, since a lot of money has been poured into the economies of many countries. Lack of energy resources due to not always well-thought-out initial steps to abandon traditional hydrocarbons stimulates price pressure. But this, alas, is only the specifics of the initial stage of the transition. Further, there will be a decrease in the consumption of traditional hydrocarbons and the resulting drop in prices for them.
But perhaps there are other factors that may affect the ruble. For example, the policy of the American Central Bank — the US Federal Reserve System — to raise the rate. The Fed's plans in this regard have already been voiced more than once. The current rate of 0-0.25% will be raised 3-4 times this year. This will be done in order to combat inflation, which in the United States has accelerated to more than 5 percent in annual terms. And it hasn't been there for almost 40 years.
But we are not talking about inflation in the US. We, or rather the Russian ruble, what does it matter?
The Fed rate hike means that the US dollar will become more expensive. And this automatically weakens the ruble. It turns out that this important factor will also be against the ruble.
Then, perhaps, at least the policy of the Bank of Russia to raise its key rate will help the ruble? Today, this rate is already 8.5%. And, it would seem, one could count on the fact that the so-called carry trade (this is when the currency, the same US dollars, is converted into rubles, then they buy, for example, ruble bonds, receive a decent ruble income, and then they transfer it back into US dollars, thereby providing ruble yields to the original dollars) will once again allow the ruble to strengthen.