Analysts predicted the ruble weakening due to easing of exchange controls :: Economy :: RBC

The dollar may rise above 65 rubles. due to the adoption of a new law on currency regulation, which exempts “sanctioned” exporters from the mandatory repatriation of foreign currency earnings, according to analysts of Raiffeisenbank

Photo: Valery sharifulin / TASS

Due to the easing of exchange controls in relation to the Russian export companies in the sanctions list, capital outflows may accelerate, and the ruble — to weaken until at least 65 rubles per dollar over the next year. This forecast was given by analysts of Raiffeisenbank in a review published on Tuesday.

Amendments mitigating foreign exchange control, the state Duma adopted in the third reading on July 12. The bill provides for including the abolition of penalties for preputial currency revenues for Russian exporters, which fell under Western sanctions. “We are talking about companies-exporters only exporters. These companies came under the sanctions and are unable to return the currency earnings, it is necessary that they are not fined for it also state structures”, — said at the beginning of July, Deputy Finance Minister Alexei Moiseev.

The informal requirement for private companies to sell foreign currency revenues on the market appeared in December 2014, when one day, on 16 December, the dollar has updated the historical maximum, rising to over 80 rubles, and Euro — 100 rubles. On the stock exchange started to panic, to calm which accounted for exporters, as President Vladimir Putin personally telephoned them. After that, a Directive was issued requiring public companies to bring to March 1, 2015 their net foreign exchange position to tier 1 Oct 2014. In December, this requirement has received five major exporters — “Gazprom”, “Rosneft”, “Zarubezhneft”, “ALROSA” and “Crystal”.

The Effect Of “Rosneft”

“Up to this point [output directives] due to the fact that Russian exporters have left a significant part of export proceeds abroad, has increased its foreign assets, the export of capital (financial account) sometimes even exceeded the balance of the current account. For example, before the introduction of the sanctions regime in 2013, we exported $46 billion, while the current account surplus was $35 billion, the difference was offset by the sale of currency of the Central Bank in the framework of the existing technological corridors”, — stated in the overview of Raiffeisenbank.

The list of these five companies financial penalties are only effective with respect to Rosneft, analysts say (they do not take into account “Gazprom Neft”, as the Directive only specified “Gazprom”, and he was under financial sanctions is not). Economists have calculated the consequences for capital flight and the ruble exchange rate in case of cancellation of the hard currency control in relation to the company. The representative of “Rosneft” refused to comment RBC.

Photo: Vladislav Shatilo / RBC

Export revenue of “Rosneft” in 2017 amounted to $64,3 billion, “to cover the operating costs of the ruble (cost and taxes) of the company are insufficient ruble revenues,” the economists say.

“According to our estimates, it would have to partially convert foreign exchange earnings into rubles (60%) under the assumption that the company does not attract ruble-denominated debt to cover their ruble costs. Thus, provided that “Rosneft” will place the remaining proceeds abroad, potentially a year supply of currency (increase of monetary liquidity on the balance sheets of Russian banks) could be reduced from $25.7 billion (if denominated operating expenses are covered solely from operating income) to $64,3 billion (if it involves ruble-denominated loans), respectively, the amount of currency local market may receive less,” said Raiffeisenbank.

Does the influence of

The average Brent oil price of $75 and the average rate of the dollar at RUB 63 current account balance for 2018 could reach $100 billion, analysts predict. Approximately $70-75 billion the market will take as a result of currency interventions of the Ministry of Finance (he buys the currency on the windfall from oil is more expensive $40 and sends it to the reserves). External debt, according to the model of the Bank should be reduced due to external conditions, and cancellation of repatriation “will increase capital outflows (the financial account) and a further increase in deficit of foreign exchange liquidity in the local market”. Will occur and a noticeable weakening of the ruble, predicts Russia’s Raiffeisenbank: the Bank estimates that on the horizon will lead to a shift of the equilibrium exchange rate to above 65 rubles per dollar for the same $75 per barrel of Brent. 65 RUB is low, and if “Rosneft” will publish abroad the greater the revenue, the rate could fall to 70 rubles per dollar, said RBC analyst of Raiffeisenbank Denis Poryvai.

The dollar on Tuesday, trading around 62,3–62,5 RUB a Sharp depreciation of the Russian currency has already happened in April after a new round of sanctions from the United States. Brent crude (the price of Russian Urals is derived from its price) is trading at $71-72. On July 10 Brent cost $78-79, but then the price fell a few times on the news about a possible increase in the supply in the oil market.

Much stronger than a possible easing of exchange controls on the ruble exchange rate is influenced by Central Bank policy and the balance of payments, indicates the leading expert of the development Center of the Higher school of economy Sergey Pukhov. “There are more strong factors — the same price of oil, sanctions, capital flight, currency purchases by the Finance Ministry and a lot of other things in a much more powerful impact on a course than a bill abolishing the compulsory repatriation”, — he explained. A large part of foreign exchange earnings “one way or another absorbed by the Ministry of Finance” on budget rule, says the head of the center of the development strategies of Gazprombank Yegor Susin. Systemically significant influence on the ruble, the abolition of currency requirements will not have, he said. “At the moment, maybe the market will play this story,” says Cousin, qualifies this by adding that it is only “emotional” reaction of the market.

Cons control

The views of the government and the Central Bank about the need for exchange control diverge. The Ministry of Finance and Ministry of economic development propose to abandon it, and the regulator is more cautious and does not need a sharp deregulation. Their proposals on monetary control was developed by the Center for strategic research: the experts also proposed to repeal the regulation, since it is prohibitive hinders cross-border activities of Russian business, the very mechanisms of control “does not allow to achieve macroeconomic goals” on the stability of the ruble.

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