“The elephant in the room here is capital controls,” says Jane Foley, senior currency strategist at Rabobank. “Hundreds of foreign companies have said they are pulling out of Russia because of this war – I’m sure many of them would sell assets if they could.”
If and when these restrictions expire, it will put further pressure on the ruble by causing capital outflows, increasing the supply of the currency in international markets and weakening it.
“They are ok with people fleeing Russia, but the money is more important to them,” according to the European bank’s economist.
It’s not just future leavers who have an impact. Several major shipping companies are now refusing to serve Russian ports, which further skews its trade figures. According to data from FourKites, a consultancy, deliveries to Russia were down around 89% from mid-February, volumes in consumer-facing sectors such as retail and supply decreasing every week since the end of February.
“Russia obviously has a lot of commodities to export, but it needs a lot of technology, machinery and other luxuries,” Foley says. “They don’t come because of the sanctions.”
However, a powerful currency is of little use in a cloistered economy. “If you can’t use currency, what is a currency?” says Kit Juckes, macro strategist at Societe Generale. “It’s not money if I can’t use it to buy things.”
A strong ruble also poses a threat to Russia’s budget surpluses. If it stays at current levels of about 67 rubles to the dollar all year, it will be about 10 rubles higher than its economy ministry forecasts. That means dollars from oil sales don’t go that far, exposing the country to billions in potential losses.
This impact becomes all the more painful as Russia is already expected to experience a sharp downturn.
“It’s happening at the same time as the government is dealing with increased spending in certain areas,” says Tuvey. “Obviously the cost of the war itself, and then there are various social measures to try to mitigate the impact on households.”
If that happens, Russia may have to tap into its national wealth fund – or face a cap on domestic banks.
Fears have grown in Moscow in recent weeks that the ruble rally has gone too far, forcing the Kremlin to act.
Early last week, Russia said it would ease capital controls. Meanwhile, last Thursday, the Central Bank of Russia (CBR) took emergency action, bringing forward a two-week meeting and cutting its benchmark rate from 14% to 11%. This was the third such reduction in just one month. The announcement landed a few hours earlier than usual and Nabiullina gave no press conference.
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Source: www.telegraph.co.uk
This notice was published: 2022-05-28 05:00:00
