MOSCOW, April 8 – RIA Novosti, Natalia Dembinskaya. The Russian currency fell sharply, the dollar rate exceeded 78 rubles, the euro – 92. It's all about the aggravation of the situation in the east of Ukraine and the threat of disconnection from the global payment system SWIFT. How likely is a collapse to 80, why the rising oil price does not help and how the acceleration of inflation will affect the policy of the Central Bank – in the material of RIA Novosti.
The ruble started in April with strengthening, but a week later it dropped sharply. The dollar – more than 78 for the first time in five months, the euro – 92. But oil is quoted at the pre-crisis level. Geopolitics prevailed – everyone is waiting for the resumption of hostilities in the Donbass and the next sanctions, including disconnection from the international system of interbank payments SWIFT and a ban on investments in public debt.
In mid-March, it became known that Washington and London wanted to increase pressure on Moscow – in particular, to deprive Russian federal loan bonds of access to Western investors. Two possible scenarios are distinguished here: the first is a ban on all OFZs, including those already acquired, the second is only on the purchase of new ones. A full embargo is the toughest option.
Disconnecting from SWIFT doesn't bode well either. All banks are connected to the system, Russia is one of the three largest users of this global payment system.
“The market did not like the test of the combat readiness of the Russian army. The resumption of the war in the Donbass is a new cascade of Western sanctions and an unambiguous trigger for buying currency,” says financial analyst and trader Artem Zvezdin.
The Kremlin said: we are not threatening anyone, the armed forces “are located there, on the territory of Russia, where it is recognized as necessary and expedient.”
So far, experts are still inclined to believe that the most stringent restrictions will not be introduced. First, sanctions against public debt in practice will not have a significant effect. Russia no longer needs foreign capital to finance its budget deficit, said Andrei Kochetkov, a leading analyst at Otkritie Broker. Disconnecting from SWIFT is more unpleasant, but the United States is unlikely to dare to do that either.
“The country's external debt is about $ 450 billion. Disconnection from SWIFT can become a force majeure circumstance for blocking payments, and this is already a direct and very tangible damage to financial institutions in Europe and the United States. In addition, such actions will provoke a quick adaptation to alternative systems and will contribute to the further degradation of the dollar in international commodity-money exchange “, – the analyst explains.
Nevertheless, investors take these risks into account and are in a hurry to get rid of Russian assets, which, like assets of any emerging markets, are not considered conservative instruments. There is a so-called capital flight to quality – to the safest investment. This is evidenced by the decline in the share of foreign OFZ holders and the rise in interest rates. The ruble is weakening accordingly.
Everything's under control
The Kremlin reacted to the next reduction in the price of the national currency.
“Our respective departments, the government and the Central Bank are keeping the situation under control. <...> The escalation of tensions in the immediate vicinity of the borders is a factor that has rather a negative emotional impact on the markets. This, unfortunately, is a common practice,” the spokesman explained. President Dmitry Peskov.
Experts, at the same time, do not exclude that due to Ukraine the risks will increase and the ruble will continue to fall to 80 per dollar. This will accelerate inflation. And it will affect the monetary policy of the Bank of Russia.
Focus on inflation
At a meeting of the Board of Directors on March 19, the Central Bank raised the key rate to 4.5 percent per annum. By February, inflation in annual terms rose to 5.7 percent. This is the result of a weakening ruble and a global rise in prices for agricultural products. The abolition of coronavirus restrictions, followed by a surge in consumer demand, also had an effect. The need to contain prices for goods and services is the main motive behind the latest decisions of the regulator.
“Inflationary pressures have intensified, pro-inflationary risks have increased. In these conditions, we are starting to return to a neutral monetary policy. This will help bring annual inflation back to our target of around four percent in the first half of 2022,” said Bank of Russia Governor Elvira Nabiullina.
The market already has little faith in the rate below 70 rubles per dollar. According to the chief strategist of the Beta Financial Technologies index company Ararat Mkrtchyan, with a 70 percent probability the rate will be raised by another half a percent. However, if the ruble targets values above 80 per dollar, inflation expectations will rise, and the regulator will have to sharply tighten monetary policy.