After the rapid depreciation of the ruble in 2014, which peaked at the end of the year, the exchange rate fell slightly and stabilized at the same level. And in 2016, there was a steady trend of strengthening the national currency, which became more pronounced this year. Logically speaking, the strengthening of the national currency is an indicator of the recovery of the country's economy. Prices in stores should be reduced, which is important for the population. But in reality, this is not quite so. Why does the ruble strengthen if economic growth is not observed? Is it good or bad?
Dependence of the exchange rate on the cost of oil
One of the most common explanations for why the ruble is growing is the rise in oil prices. A huge part of the country's budget is formed at the expense of the sale of oil to other countries. Therefore, the national currency is sensitive to fluctuations in the value of it. If it becomes cheaper, the ruble shows a fall, if it rises, the ruble strengthens its position in relations with the euro and the dollar.
Is Rosneft to blame?
Sberbank CIB analysts said that one of the reasons why the ruble is strengthening was the deal to sell a stake in the oil giant Rosneft to foreign companies. The entry of currency into the country provoked the strengthening of the ruble. Perhaps this statement will not surprise ordinary citizens who do not imagine the size of the foreign exchange market and the amount of the transaction. Experts, on the other hand, say that the proceeds from the acquisition of a stake in the oil company are so insignificant that they could not affect the change in the exchange rate.
Speculative capital inflow
According to some experts, the use of one of the strategies for making money in the foreign exchange market, called carry trade, is the most possible explanation of why the ruble is appreciating. The scheme by which investors work is quite simple. They are credited in countries where banks lend at low interest rates. With this money they go to a country with a high rate, make a purchase of local currency, then they invest it in securities of the same country. After some time, the investor resells the securities or waits until they are repaid. Then he sells the local currency and buys the one that he needs to return on the loan, and repays it.
Such a simple scheme makes it possible to get a good income, but in a period of stability. The exchange rate is very sensitive and can change greatly due to some news. Therefore, such transactions cannot be attributed to risk-free.
But with a stable ruble exchange rate, if an investor chooses Russia, he remains the winner. With the growth of this currency, potential profit begins to grow, which becomes attractive to other investors. Since the main currency with which carry-traders come with the dollar is the dollar, their significant infusion strengthens the ruble even more. That is why the ruble is strengthening against the dollar.
Such speculations become so attractive with a high exchange rate of the national currency and a high interest rate. As the value of the currency and / or interest rate decreases, players begin to collapse such transactions.
The sharp rise in the key rate and its prolonged freezing at a high level attracted speculators who helped strengthen the ruble.
Carry Trade Danger
Investors are gradually leaving markets that are becoming uninteresting for earnings. Each of them has its own parameters. The presence of a large volume of speculative capital easily explains why the ruble is strengthening. The flip side is the abrupt closure of the vast majority of investors. The reason may be any situation in which the local currency begins to sharply cheaper. What can cause a panic and increased demand for European and American currencies. If, in a similar situation, the key rate rises sharply, then almost all speculators will try to get rid of rubles, which will lead to a very sharp rise in price of other currencies and the depreciation of the national one. Some analysts are inclined to believe that this is exactly what happened in December 2014. And a similar situation could happen again.
Why the budget benefits from a weak national currency
Due to the specifics of the Russian budget, which consists in the fact that the main items of income and expenses are formed in different currencies, a strange situation arises. A strong national currency is absolutely not needed. The state earns on export sales of energy, metal, timber and other raw materials. For them, buyers pay in dollars. However, most of the expenses are in rubles. Therefore, the more depreciated the ruble, the more this currency can be obtained for internal circulation. That is why it is bad when the ruble strengthens. To cover the budget deficit, devaluation of the national currency will become one of the tools.
Price reaction
With a steady strengthening of the national currency, prices in stores should decline. But this is practically not observed. There are several reasons for this. One of them is that products are purchased in certain batches at prices valid at the time of purchase. The term of its implementation from the warehouse depends on the specifics. If this is a product with a short shelf life, the turnover period of which is very short, then it can become cheaper quite quickly.
Another reason why the ruble is strengthening, and prices are rising or remain at the same level, is the lack of confidence among entrepreneurs that the strengthening of the national currency is long-term. To create a certain financial “pillow” prices remain unchanged.
The value of a product itself includes several components, and it’s impossible to say that when the value of a currency changes (in one direction or another), prices will react in a similar way.
For example, an increase in excise taxes will affect the rise in price of certain categories of goods, regardless of the exchange rate. A rise in the price of logistics services and an increase in the cost of gasoline also hinder the reduction in the cost of goods for end consumers.
Prospects
Most analysts are inclined to believe that the reasons why the ruble is strengthening are temporary, since a strong national currency with a deficit budget is not interesting to the authorities. It is difficult to say how controlled and how much the currency will be devalued. Another problem is that the country's economy is very dependent on the cost of oil and gas and their sales. These factors can also affect the ruble exchange rate. And both in a positive and in a negative direction. The real sector of the economy is very poorly developed.
Real growth of the economy in the near future can not be expected. In addition, access to external investment is very limited. In such a situation, it becomes clear why the ruble is not allowed to strengthen. Therefore, the current trend will not last long.