Why the Ministry of economy undervalues the ruble

Why the Ministry of economy undervalues the ruble

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Senior Vice President of Analytics at foreign exchange markets “Alpari” Anna Kokoreva — verbal interventions


Photo: from personal archive of Anna Kokoreva

The Ministry of economic development has published a new macroeconomic forecast for the development of economy of Russia till 2020. Published data has surprised experts, as the forecast clearly States that in the coming years, the ruble will only weaken, and not strengthen.

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For example, in 2017, the Agency predicts the average rate of 64.4 rubles per dollar in 2018 69.8 per ruble per dollar, and by 2020, the rate would be all to 72.7 rubles per dollar. Clear justification of the forecast of the Ministry of economy does not. The current growth of the national currency Maxim Oreshkin explains seasonal factors and operations of the Ministry of Finance on the currency market. Given the lack of clear justification of their forecasts to the approval of the Ministry of economic development is strange.

Today ruble pair is influenced by a whole group of factors: oil prices, domestic economic policies, macroeconomic statistics, the dynamics of the Euro/dollar, the monetary policy of the Central Bank of the Russian Federation and, of course, the geopolitical situation. Change each of them entails the volatility of the exchange rate, and often predicting them is very difficult, so long-term forecasts for the next few years look insolvent, since much will change.

In the coming years, the ruble will remain sensitive to geopolitical changes. Already today we see that the intensification of the conflict in Syria and, as a consequence, relations between Russia and the United States led to the weakening of the ruble, despite the rise in oil prices. This shows that political factors are primary for the ruble. If political tensions will increase, the ruble will be in difficulty and projections of economic development are destined to be realized. However, it is unlikely that the Department can anticipate the development of the political situation for several years ahead.

Further, the degree of impact on the ruble goes, the dynamics of EUR/USD pair, the movement of which is determined by the policy of the ECB and the fed. For a long time the pair traded in the corridor 1,035–1,145 in and out of it is not going to. The tightening of monetary policy in the United States goes smoothly, and the strengthening of the dollar will be slow, and hence the pressure on the ruble will be minimal.

Third and quite important factor is domestic economic policy, which is determined by the dynamics of the macroeconomic and fiscal position of the Russian Federation. And if the dynamics are first improved, then the budget remains in deficit, pushing the government’s verbal intervention in favor of the weakening of the ruble, as it is from the exchange rate will depend on the size of the deficit this year and next year. It is natural that, with projected deficit of 3.2% of GDP by the end of 2017, the government stands up for the weak ruble. But opportunities to influence the ruble directly from government, as this right is exclusively assigned to the CBR.

The regulator still holds tight monetary policy and slowly lowers the rate, it is unlikely in the coming years the situation will change. For a sharp rate cut need stability in the economy, and we don’t have and have not before 2020. However, menneisyyteen rate even by 0.25% impact on the ruble, weakening it.

And, of course, the price of oil, although in the last year the dependence of the ruble against them is severely decreased. To regulate prices by cutting oil production by OPEC and other producers are able is not very efficient, the demand for hydrocarbons is growing slowly, which means that the next few years high oil prices we have not seen.

Factors indicating the weakening of the ruble in the short term, more than of its further strengthening. However, we do not believe that it is a fairly strong race, and the return of the pair dollar/rouble to a mark of 70 rubles. The average rate in 2017 will be about 60 rubles to the dollar, in 2018 — about 63-65 rubles. For long-term investors to buy the currency of the future makes sense, but run headlong to the exchangers is not worth it, because clear signals to weaken, and yet the trend on both pairs from a technical point of view remains to the downside. That is why the words of the government, and the Ministry of economy in particular, no one takes seriously.

The author is Director of currency analysis and energy markets of the company “Alpari”

The opinion of the author may not coincide with the position of the editorial Board

See also:

Putin signed a law on Russia’s accession to the Montreal Convention

Oreshkin said Russia’s economy entered a phase of growth

Oreshkin predicted the dollar’s rise to 72.7 rubles to 2020