The rapid recovery of the ruble on the Moscow Stock Exchange to levels before February 24 is advertised in the state media and by some government officials as proof that the authorities have kept the country’s economy stable despite the toughest Western sanctions. “Our economy seems to be resilient to Western sanctions, the ruble is clearly stabilizing,” a state television presenter said on Friday. The ruble traded above $ 72 on Friday at RUBUTSTN = MCX, its strongest level so far this year, moving away from a record low of 121.52 on March 10. Analysts polled by Reuters in late March expected the ruble to trade at 97.50 in 12 months. However, anyone trying to buy foreign currency online at a bank or, illegally, in a foreign exchange booth, or who buys goods and services electronically in foreign currencies, will find the real exchange rate much worse. And the ruble’s purchasing power has eroded sharply as companies raise prices for goods, especially those produced outside Russia whose future supply is questionable due to sanctions. “I used to buy boxes of Dutch-made baby milk for 2,500 rubles before February 24,” said Marina, a Moscow resident, with her newborn baby. “Now the same box costs 4,500 rubles, while the boxes of kasha (a drink based on porridge for children) have risen to 100 from 64 rubles for a box of 500 ml.” Since February 24, food prices have skyrocketed, pushing up cabbage and carrot prices from year to year to 85% and 54%, respectively, according to Rosstat. Prices of imported products jumped even higher, with prices for some foreign-made cars more than doubling. High inflation has been the main concern of households for years, as it lowers living standards, a decline that will be exacerbated by the deeper economic contraction since 2009, according to a Reuters poll. A survey by the state polling agency VTsIOM in February found that 64% of people in Russia had no savings. Extraordinary capital controls helped the ruble recover in Moscow, where trading volumes fell compared to before the Kremlin launched what it calls a “special military operation” in Ukraine. Nobel laureate economist Paul Krugman said the ruble had become a critical target for Russia’s defense, “not so much because everything is important but because it is so clearly visible.” “Thus, defending the ruble, without compromising the real economy, makes sense as a propaganda strategy,” Krugman told the New York Times in an article earlier this month. Kremlin spokesman Dmitry Peshkov dismissed Western claims that the stabilizing ruble did not reflect the real economic situation.
DANGERS FROM A STRONG RUPLE
But a formal appreciation of the currency carries risks. It makes selling foreign currency abroad less profitable, as the revenue that Russia ultimately receives from such exports is mainly 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. “Further tightening of the ruble will break the budget,” said Evgeni Suvorov, an economist at CentroCreditBank, adding that ruble earnings could deprive the budget of funds needed to support companies, banks and In a sign that the authorities are worried about the appreciation of the ruble, which surprised many experts, Finance Minister Anton Siluanov said that his ministry and the central bank aim to make the ruble more predictable. Market volatility has skyrocketed in recent weeks. The supply-demand balance was upset as authorities, seeking to limit ruble losses, forced export-focused companies to convert 80% of their foreign exchange earnings into rubles, which became the main driver for the once-free float. coin. At the same time, demand for FX was artificially suppressed. Russia has banned the buying of dollars and euros in cash, introduced a 12% commission for buying foreign currency online and set the maximum amount a person could withdraw from his bank account to $ 10,000 by 9 September. “People are cold on forex because of commissions and restrictions on their withdrawal from the country,” said Maxim Biryukov, a senior analyst at Alfa Capital brokerage. The finance ministry told Reuters that the recent sharp boost had affected 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 by Reuters on the ruble exchange rate.
ISSUE OF INFLATION
Theoretically, a stronger ruble could help curb inflation, which is well on its way to jumping to 24%, the highest level since 1999, according to analysts polled by Reuters. The central bank targets 4%. However, consumer prices continue to rise due to import disruptions and a lack of foreign components, said Gazprombank economist Pavel Biryukov, who forecasts annual inflation at 27% by mid-2022. Despite the remarkable gains in the ruble on the Moscow Stock Exchange, banks offer to sell dollars and euros at different prices. On Friday, the largest lender Sberbank SERB.MM sold dollars and euros on the Internet for 79.8 and 85.1 rubles, respectively, compared to the official interest rates of 76.25 and 83.29. Some exchanges still sell forex cash for rubles despite the official ban, but at a different price. A short walk from the Kremlin, an exchange behind an unmarked door offered to sell dollars in cash for 93 rubles and euros for 103 rubles on Thursday. A man behind a bulletproof glass in the office explained the gap between his prices and the ruble exchange rate on the Moscow Stock Exchange with the “need to make some money”. Russia’s tourism industry also has different exchange rates for those who have enough money for a vacation abroad. The euro-ruble exchange rate for travel to Turkey was at 85.5 on Friday, according to Coral Travel in Moscow. (Report by Reuters; Edited by Nick Macfie) (Chart by Deena Zaidi of CTVNews.ca)
