After the historic collapse as a result of the attack in Ukraine, the ruble regained its color. This was successful in the face of western sanctions, supported by a plunge in energy, but does not reflect the true health of the economy.
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From late February to early March, the currency market panicked. The ruble starts at a level never seen before against a greenback. 100 rubles, then 120 rubles, until reaching over 140 rubles per dollar on March 7.
However, the Russian currency has continued to rise since that day, reaching 71 rubles per dollar, the record since the fall of 2021, and 77 rubles / euro, the strongest level since June 2020. bottom.
For the authorities, this is great news, and the ruble’s course is a scrutinized indicator by the public, showing that sanctions are not lacking in Russian fortresses.
How do you describe such performance while unprecedented Western sanctions are piled up in Russia?
According to Sophia Donets, Russia’s Chief Economist at Renaissance Capital, the answer lies in an unprecedented trade surplus.
According to economists, “imports to Russia are declining, but exports are strong and hydrocarbon prices are high, so a trade surplus in March is estimated at $ 20-25 billion.” ..
Russia’s major exports, oil and gas, continue to flow, filling Russia’s financial resources.
“Sure, Russian oil (urals) is sold at a lower price than Brent,” she points out.
However, there are announcements. Washington thus proclaimed a ban on Russia’s oil, and the EU ordered a ban on the metal sector.
“These are noisy announcements, but looking at the numbers, this is only related to 5% of Russia’s exports,” Sofya Donets said.
As long as Europe, the first purchaser of Russian hydrocarbons, continues to buy, Moscow is guaranteed a significant income.
Strong exports are complemented by strict capital controls introduced by central banks. The latter was certainly hit by unexpected sanctions. Foreign exchange reserves held abroad, about $ 300 billion, have been frozen.
However, it is this wind and rain that has traditionally been used to protect the Russian currency in the event of a severe blow.
To make up for this, all exporters were forced to sell 80% of their export revenue to buy rubles.
Individuals are limited to $ 10,000 per month and cannot leave the territory beyond this amount. We find that financial markets are isolated as most international transfers are blocked and foreigners are prohibited from selling Russian assets.
These capital controls have worked very well to strengthen the ruble, with the central bank doubling to 20% in an emergency on February 28 and then lowering the key rate to 17% without notice. I was surprised.
According to a note from Renaissance Capital, “it gives them space to focus on domestic affairs,” that is, finding a balance between runaway inflation and an impending recession. Investment banks predict a peak of 24% before inflation falls in the summer.
Inflation in March surged to 16.7% year-on-year, according to data from the Statistics Bureau Rossstat released on Friday. This is a level not seen since the beginning of 2015.
According to Capital Economics, price increases have accelerated by 7.6% month-on-month compared to February of this year, the record since the 1990s.
“Russia’s stock market and rubles remain isolated from global macroeconomic factors and information flows,” Alfa Bank said, predicting that the rubles will be around $ 80-85 per dollar in the near future. There is.
“The ruble rate has become a local tool. There is no flow of money. Markets are currently being destroyed and currency prices are a factor in international trade,” said Sophia Donets.
“Where would it be without capital controls? It’s hard to say,” she concludes, citing an unprecedented situation.