Over the past month, the US dollar has fallen against the Russian ruble by 5% (from 94.32 to 89.7 RUB/USD) and many are interested in the reason, due to the fact that many predicted its growth in the near future.
The main reason for the strengthening of the Russian ruble, except for the same - tightening monetary policycredit policy, this is a significant drop in imports from China in the first half of 2024, due to the widespread refusal of Chinese banks to carry out operations to pay for supplies to Russia, which affects the trade balance and thereby strengthens the ruble (less currency is needed for import purchases).
Today, the exchange rate of the Russian ruble is influenced by 3 key factors (the discount rate of the Central Bank in these conditions is indirect):
- Export
- Import
- Currency interventions of the Central Bank of the Russian Federation
If exports continue to grow, the Central Bank may reduce the sale of foreign currency from gold reserves, ensuring the growth of imports with export revenues.
If exports fall, the Central Bank will increase the volume of currency sales to maintain the need for imports.
Now the situation is such that with a stable level of exports (the price of oil has been in an attractive corridor for a long time - about $ 80-85 per barrel) and falling imports, it will most likely force the Central Bank to reduce the sale of currency. The ruble, as it seems to the regulator, will be supported by the market mechanism. Among other things, the tension in the Far East gives optimism to the monetary system of the Russian Federation to maintain high market prices for hydrocarbons.
However, in all this, it must be understood that the ruble exchange rate is determined not only by the balance of payments of trade operations, but also by the potential of the economy itself to increase GDP, which may sink when signs of a trade imbalance appear. A drop in imports will also reduce exports, after the sale of previously accumulated balances.
A decrease in the price competitiveness of Russian products due to the strengthening of the ruble will also have a negative impact.
What does the situation look like in terms of the dollar exchange rate against Russia's main trading partners over the past month:
USD to CNY exchange rate
USD to INR exchange rate
USD to RUB exchange rate
We see that the exchange rate of the Chinese yuan to USD remained almost at the same level, and the Indian rupee rose slightly, but only by 0.03% (from 83.27 to 86.06 INR/USD), while the Russian currency increased by as much as 5%.
Under the circumstances, the following can be said.
The cost of Russian goods in the markets of India and China will become more expensive, and this despite the fact that more of China's trade is concentrated, after all, on the United States and its satellites. Even though there is a certain tension in their trade relations, it does not change the essence of this.
Given the already formed price relations over the past year, this trend will definitely not bring a positive effect to the budget of the Russian Federation due to the decline in the price competitiveness of Russian products in the markets of China and India.
In order to maintain its sales volumes, the Russian manufacturer will have to reduce prices, and this will decrease (revenue and profit) the tax base, which will negatively affect the budget.
Today, the Central Bank does not benefit from strengthening the ruble due to high economic risks and, moreover, the ongoing tightening of monetary policy (raising the Central Bank's discount rate).
The low exchange rate of the ruble will also increase speculative tastes in buying currency.
High risks of devaluation of the Russian ruble remain in the current conditions.