Why the ruble is strengthening: features, interesting facts and possible reasons

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

After the rapid depreciation of the ruble in 2014, which peaked at the end of the year, the exchange rate fell slightly and stabilized at the same level. And in 2016, there was a steady trend of strengthening the national currency, which became more pronounced this year. Logically, the strengthening of the national currency is an indicator of the recovery of the country's economy. Prices in stores should be reduced, which is important for the population. But in fact, everything is not quite so. Why is the ruble strengthening if there is no economic growth? How good or bad is that?

Dependence of the exchange rate on the cost of oil

One of the most common explanations why the ruble is rising is the rise in oil prices. A huge part of the country's budget is formed from funds from the sale of oil to other countries. Therefore, the national currency is sensitive to fluctuations in its value. If it becomes cheaper, the ruble demonstratesfall, if it rises in price - the ruble strengthens its position in relations with the euro and the dollar.

Is Rosneft to blame?

Sberbank CIB analysts said that one of the reasons why the ruble is strengthening was a deal to sell a stake in the oil giant Rosneft to foreign companies. The influx of foreign currency into the country provoked the strengthening of the ruble. Perhaps such a statement will not surprise ordinary citizens who do not imagine the scale of the foreign exchange market and the amount of the transaction. Experts say that the proceeds from the acquisition of the oil company's stake are so insignificant that they could not affect the change in the exchange rate.

Inflow of speculative capital

According to some experts, the use of one of the strategies for making money in the foreign exchange market, called the carry trade, is the most possible explanation for why the ruble is strengthening. The scheme by which investors work is quite simple. They are borrowed in countries where banks lend at low interest rates. With this money, they go to a country with a high rate, buy local currency, then invest it in securities of the same country. After some time, the investor resells the securities or waits until they are redeemed. He then sells the local currency and buys the one he needs to pay back on the loan and repays it.

Such a simple scheme makes it possible to get a good income, but in a period of stability. The exchange rate is verysensitive and can change a lot due to some news. Therefore, such transactions cannot be classified as risk-free.

But with a stable exchange rate of the ruble, if the investor chose Russia, he still wins. With the growth of this currency, the potential profit begins to grow, which becomes attractive for other investors as well. Since the main currency with which entrepreneurs involved in the carry trade come is the dollar, their significant injection strengthens the ruble even more. That's why the ruble is strengthening against the dollar.

Such speculation becomes so attractive with a high exchange rate of the national currency and a high interest rate. As the value of the currency and/or the interest rate declines, players begin to wind down such deals.

The sharp rise in the key rate and its long-term freezing at a high level attracted speculators, who helped strengthen the ruble.

The danger of the carry trade

Investors are gradually leaving markets that are becoming uninteresting for earnings. Each of them has its own parameters. The presence of a large amount of speculative capital easily explains why the ruble is strengthening. The reverse side is a sharp closing of the positions of the overwhelming number of investors. The reason can be any situation in which the local currency starts to fall sharply in price. What can cause panic and increased demand for European and American currencies. If in such a situation the key rate rises sharply, then almost all speculators will try to get rid of rubles, which will lead to a very sharp rise in price.other currencies and the depreciation of the national one. Some analysts tend to believe that this is what happened in December 2014. And this situation may happen again.

Why the budget benefits from a weak national currency

Due to the specifics of the Russian budget, which consists in the fact that the main items of income and expenses are formed in different currencies, a strange situation arises. A strong national currency is absolutely not needed. The state earns on the export sales of energy, metal, timber and other raw materials. For them, buyers pay in dollars. At the same time, most of the expenses are made in rubles. Therefore, the more depreciated the ruble, the more this currency can be received in domestic circulation. That is why it is bad when the ruble strengthens. To pay off the budget deficit, the devaluation of the national currency will become one of the tools.

Price reaction

With a steady strengthening of the national currency, prices in stores should decline. But this is practically not observed. There are several reasons for this. One of them is that products are purchased in certain batches at prices in force at the time of purchase. The term of its implementation from the warehouse depends on the specifics. If it is a product with a short shelf life, the turnover period of which is very short, then it can fall in price quite quickly.

Another reason why the ruble strengthens while prices rise or stay the same is the lack of faithentrepreneurs that the strengthening of the national currency is long-term. To create a certain financial cushion, prices remain at the same level.

The cost of goods itself includes several components, and it is impossible to say that when the value of the currency changes (in one direction or another), prices will react in a similar way.

For example, an increase in excise duties will affect the rise in price of some categories of goods, regardless of the exchange rate. The rise in the cost of logistics services and the rise in the cost of gasoline also impede the reduction in the cost of goods for end consumers.

Prospects

Most analysts tend to believe that the reasons why the ruble is strengthening are temporary, since a strong national currency with a deficit budget is of no interest to the authorities. It is rather difficult to say how controlled and how much the currency will be devalued. Another problem is that the country's economy is very dependent on the cost of oil and gas and the volume of their sales. These factors may also affect the exchange rate of the ruble. And both in a positive and in a negative direction. The real sector of the economy is very poorly developed.

Real economic growth in the short term is not expected. In addition, access to outside investment is very limited. In such a situation, it becomes clear why the ruble is not allowed to strengthen. Therefore, the current trend will not last long.