«If this decree is canceled, there will be an inevitable weakening of the national currency within 10%»
An important issue that has been worrying the foreign exchange market for several weeks now seems to be close to being resolved. As it became known on Tuesday, April 23, the Russian monetary authorities are inclined to extend the requirements for the return of foreign currency earnings by the largest exporting companies until the end of this year. True, for now this news appears as a leak from the corridors of power, and there was no official confirmation of it at the time of writing this material.
Let us recall that the decree on the mandatory sale of foreign currency earnings by exporters until April 30, 2024 was signed by Russian President Vladimir Putin on October 11 last year. Then this measure helped to very quickly bring down the exchange rate of the dollar, which had previously reached 101 rubles several times, to levels of 90-92 rubles. Since then, the national currency exchange rate has stabilized.
The Ministry of Finance and the government as a whole give the main credit for this to the effect of the presidential decree and have always insisted on its extension. But the Bank of Russia has repeatedly opposed the extension of this document, pointing out that a strong balance of payments and a high key rate played a major role in the strengthening of the ruble in the fourth quarter of 2023. The dispute between the departments — both public and behind the scenes — clearly dragged on, which unnerved the market.
Now, apparently, the decision has been made. As follows from unofficial comments so far, if the mandatory sale of foreign currency earnings is extended, the standards will remain the same. 43 groups of companies from among the largest exporters are required to credit at least 80% of the revenue to their Russian accounts, and then sell at least 90% of the amount credited to the accounts on the domestic market. First of all, we are talking about companies in the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and forestry industries, as well as grain farming. Organizations will be required, as in previous months, to submit plans and schedules for the purchase and sale of foreign currency on the domestic market to the Central Bank and Rosfinmonitoring.
Sovcombank chief analyst Mikhail Vasiliev expected that this measure would be extended after April 30, although he does not rule out that the sales parameters (80% and 90%) could still be softened, and exporters would sell smaller volumes of currency than now. According to the expert, in general, this measure allows the government to maintain a stable exchange rate of the ruble and prevent its excessive weakening or over-strengthening. In turn, a stable ruble exchange rate makes it possible to contain inflation and balance the interests of exporters, importers, businesses and citizens.
In general, this opinion is shared by BCS World of Investments stock market expert Mikhail Zeltser: he has no doubt about the high effectiveness of the standards for the sale of foreign currency earnings to restore the ruble exchange rate. “It is enough to evaluate the dynamics of the ruble after the autumn decree, and all questions will disappear,” Zeltser points out. “In a matter of weeks, the ruble strengthened from almost 102 rubles to below 88 rubles per dollar.”
Arthur Meinhard, head of the analytical department for global markets at Fontvielle Investment Company, in turn, predicts that if this decree is canceled, there will be an inevitable weakening of the ruble within 10%. And in this case, the Russian currency will leave that corridor of 90-95 to the dollar, which is quite comfortable according to many criteria for market participants.
“If the mandatory sale of foreign currency continues, this will support the ruble, helping to increase the supply of foreign currency “,” says Vladislav Antonov, financial analyst at BitRiver. In his opinion, the ruble has a chance to strengthen, especially with rising oil prices, and the exchange rates of the dollar, euro and yuan against the ruble may decline. On the other hand, if the mandatory sale of foreign currency earnings is nevertheless cancelled, this may lead to some weakening of the ruble due to a decrease in the supply of foreign currency on the market. However, according to the analyst, the negative effect on the Russian national currency in this case will be moderate and will also depend on the dynamics of oil prices and import-export flows. “For the dollar, the key resistance level is at 93.35 rubles. As long as the price is trading below it, nothing threatens the ruble,” says Antonov.