Analysis: The Russian ruble’s rebound is not quite what it seems

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  • The ruble rallies on the Moscow Stock Exchange to levels seen before February 24
  • Ruble helped by emergency capital controls and Cenbank rate hike
  • Exchange rates in banks, online services remain weaker
  • A strong ruble could pose risks for the budget

April 8 (Reuters) – Six weeks after Russian troops were sent to Ukraine, the ruble has enjoyed a seemingly extraordinary recovery, but all is not as it seems and the exchange rate used in day-to-day transactions is sometimes very different from the official rate.

The rapid rebound of the ruble on the Moscow Stock Exchange to levels seen before February 24 is being touted in state media and by some government officials as proof that the authorities have firmly brought the country’s finances under control despite the harshest Western sanctions. severe all the time.

“Our economy seems to be resisting Western sanctions, the ruble is visibly firming up,” a state television presenter said on Friday.

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The ruble rose above 72 against the dollar on Friday, its highest level so far this year, moving away from a record low of 121.52 reached on March 10. Analysts polled by Reuters in late March expected the ruble to trade at 97.50 against the greenback. in 12 months.

The ruble rebounds after hitting all-time lows

But anyone who tries to buy foreign currency online from a bank or illegally from a currency exchange, or buys goods and services online denominated in foreign currency will find the real rate considerably worse.

And the ruble’s purchasing power has eroded sharply as companies raise the prices of goods, especially those produced outside Russia whose future supply is uncertain due to sanctions.

“Before February 24, I bought boxes of formula milk made in the Netherlands for 2,500 rubles,” Moscow resident Marina said with her newborn baby. “Now the same can costs 4,500 rubles while cans of kasha (a porridge-based drink for children) have gone from 64 rubles to 100 for a 500ml can.”

Since February 24, food prices have soared, bringing the year-to-date increase in cabbage and carrot prices to 85% and 54%, respectively, according to the Rosstat statistics service.

Prices of imported goods rose further, with the prices of some foreign-made cars more than doubling.

High inflation has been the main concern of households for years as it drives down living standards, a decline that will be made worse by the deepest economic contraction since 2009, according to a Reuters poll.

A February survey by state polling agency VTsIOM showed that 64% of Russians had no savings.

Emergency capital controls have helped the ruble rebound in Moscow, where trading volumes have fallen from before the Kremlin launched what it calls its “special military operation” in Ukraine.

Nobel Prize-winning economist Paul Krugman said the ruble has become a crucial target for Russia to defend, “not so much because everything is important, but because it is so clearly visible.”

“So defending the ruble, let alone the real economy, makes sense as a propaganda strategy,” Krugman said in a New York Times op-ed earlier this month.

Kremlin spokesman Dmitry Peskov ignored Western claims that the strengthened ruble does not reflect the real economic situation.

STRONG RUBLE RISKS

But official currency appreciation carries risks. This makes it less profitable to sell commodities abroad for foreign currency, since the revenue Russia ultimately derives from these exports is mostly denominated in rubles.

This could put pressure on the already crisis-ridden budget at a time when Russia is cut off from global capital markets and has sharply raised lending rates.

“A further strengthening of the ruble will tear the budget apart,” said Evgeny Suvorov, an economist at CentroCreditBank, adding that ruble gains could deprive the budget of funds needed to support businesses, banks and households.

In a sign that authorities are concerned about the ruble’s appreciation, which surprised many experts, Finance Minister Anton Siluanov said his ministry and the central bank aimed to make the ruble more predictable.

Market volatility has increased in recent weeks. The balance between supply and demand was disrupted when the authorities, seeking to limit ruble losses, forced export-oriented companies to convert 80% of their foreign exchange earnings into rubles, which became the main driver of the once floating currency.

At the same time, the demand for currency has been artificially suppressed. Russia has banned cash purchases of dollars and euros, introduced a 12% commission on the purchase of foreign currency online and set the maximum amount an individual can withdraw from their bank account at $10,000 up to to September 9.

“People have turned cold towards forex because of the commissions and restrictions on its withdrawal from the country,” said Maxim Biryukov, principal analyst at Alfa Capital brokerage.

The Finance Ministry told Reuters that the recent sharp strengthening had an impact on oil and gas revenues but did not pose a risk to Russia’s fiscal policy.

The central bank did not respond to a request for comment from Reuters on the ruble rate.

INFLATION ISSUE

In theory, a stronger ruble could help contain inflation which is on track to climb to 24%, its highest level since 1999, according to analysts polled by Reuters. find out more The central bank is aiming for 4%.

But consumer prices continue to rise due to import disruptions and a lack of foreign components, said Gazprombank economist Pavel Biryukov, who predicts annual inflation of 27% by mid-2022.

Despite the remarkable gains of the ruble on the Moscow Stock Exchange, banks offer to sell dollars and euros at different rates. On Friday, the biggest lender Sberbank was selling dollars and euros online for 79.8 and 85.1 rubles, respectively, against an official rate of 76.25 and 83.29.

Some exchange offices still sell currency in cash for rubles despite the official ban, but at a different price.

A short walk from the Kremlin, a currency exchange office behind an unmarked door offered to sell cash dollars for 93 rubles and euros for 103 rubles on Thursday.

A man behind bulletproof glass in the office explained the discrepancy between his prices and the ruble rate on the Moscow Stock Exchange as “the need to make money”.

The Russian tourism industry also has different exchange rates for those who have enough money to vacation abroad. The euro-ruble conversion rate for buying trips to Turkey was 85.5 on Friday, according to a Coral Travel agency in Moscow.

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Reuters reporting; Editing by Nick Macfie

Our standards: The Thomson Reuters Trust Principles.

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