The ruble is likely to show a moderate recovery against the dollar and euro this week; the dollar will trade just below 67 rubles/$1, while the euro will fall to 77.5 rubles/EUR1, according to Interfax-CEA analysts. The national currency's strengthening will likely occur under the following conditions: peak tax payments in August, the total amount of which is estimated at more than 1.3 trillion rubles, and the Central Bank of the Russian Federation's refusal to purchase foreign currency on the open market, Interfax reports.
The predicted continued strengthening of oil prices, as well as the decline of the dollar on the global market, will also have a positive impact on the ruble.
With non-residents continuing to withdraw from ruble assets, the ruble fell significantly for much of last week. However, amid heightened volatility, it managed to recoup almost all of its losses against the dollar, while only slightly slowing its decline against the euro. By the end of the week, the ruble had fallen just 0.02% against the dollar and 1.6% against the euro. At the peak of the weekly rally, the dollar surpassed 69 rubles/$1 for the first time since April 5, 2016, and the euro reached 79.77 rubles/EUR1 for the first time since April 11 of this year.
The main reason for the national currency's weakening was non-residents' withdrawal from ruble assets in anticipation of new US anti-Russian sanctions, as evidenced by the negative dynamics in the Russian government debt market. Specifically, the RGBI OFZ net price index fell during the week to its lowest level since December 2016, at 133.8 points.
In turn, the factor that allowed the ruble to reverse its losses by Friday evening was the Central Bank of Russia's decision to suspend open market foreign currency purchases under the fiscal rule until the end of September. Market participants welcomed both the expected decline in demand for foreign currency liquidity and the regulator's readiness to respond to changes in the overall market environment.
Furthermore, rising oil prices, driven by concerns about a decline in global fuel supplies, had a positive impact on the Russian currency market. As a result, Brent crude rose 5.61 TP3T last week, marking its first rise in four weeks. WTI's weekly gain of 5.41 TP3T came after seven consecutive weeks of decline.
The ruble has weakened significantly in both currency pairs since Monday, and its decline against the dollar at its peak on Thursday was almost 31% of the previous Friday's value, while against the euro it was almost 41% of the previous Friday's value. This decline occurred amid anticipation of news regarding the effective date of the new sanctions package related to the Skripal case and the results of US Senate hearings on US-Russian relations and the development of new sanctions.
Back in early August, the US State Department announced its intention to impose two sets of new sanctions due to the Salisbury poisoning: one at the end of that month and the second in November. At the time, the department did not specify the specific restrictive measures Washington was considering, but it did report that they would take effect "around August 22."
This sanctions package consists of two blocks. The first block includes a ban on foreign aid to Russia, arms sales and financing of such transactions, a ban on lending by US government agencies, and a ban on the export of dual-use goods and technologies.
In particular, the new sanctions package provides for the termination of aid to Russia under the Foreign Assistance Act of 1961, with the exception of humanitarian aid, food supplies, and agricultural products.
The second package of sanctions could include a significant reduction in diplomatic relations, the suspension of flights to the US for the state-owned airline Aeroflot, and almost complete restrictions on exports and imports.
Additional pressure on the ruble exchange rate was exerted by the resumption of higher currency purchases by the Central Bank of the Russian Federation (CBR) under the budget rule at the end of last week (17.5 billion rubles per day instead of the planned 16.7 billion rubles) and the decision by the Russian Ministry of Finance to cancel the traditional auction for the placement of OFZs.
On August 8, the Bank of Russia halved its previously announced volume of foreign currency purchases for the Ministry of Finance (to 8.4 billion rubles), and the following day, it completely ceased making these purchases on the open market. Overall, by August 17, the day the Central Bank resumed these operations, the volume of unpurchased foreign currency totaled 108.6 billion rubles.
The Russian Ministry of Finance has cancelled its traditional OFZ auction on Wednesday, August 22. According to the ministry's website, this decision was made due to sharply increased volatility in financial markets and in consideration of the opinions of debt market players regularly participating in OFZ auctions. The ministry announced that it will resume OFZ auctions once the debt market situation stabilizes.
On Thursday, the ruble managed to reverse course and begin to recover in both currency pairs, despite a sharp decline in the first half of the day. The reason market participants actively closed short positions on the ruble was the Bank of Russia's announcement that it would suspend foreign currency purchases for the Ministry of Finance until the end of September.
The Central Bank of Russia has decided not to purchase foreign currency on the domestic market under the budget rule from August 23 until the end of September, according to a press release from the Bank of Russia. The regulator stated that the purpose of this decision is to increase the predictability of monetary authorities' actions and reduce financial market volatility. The Central Bank also emphasized that it is monitoring the financial market situation and has sufficient tools to prevent threats to financial stability.
On Friday, the ruble continued to strengthen against the dollar and the euro, fueled, in addition to the Central Bank's decision, by rising oil prices and a corrective recovery in the OFZ market. Increased demand for ruble liquidity as export companies prepare for peak payments during the August tax period also had a positive impact on the national currency. On Monday, August 27, export companies pay VAT, mineral extraction tax, and excise taxes, and on Tuesday, August 28, they pay corporate income tax. The total amount of payments this month exceeds 1.3 trillion rubles.
In addition, the dollar-ruble pair reacted to the dollar's decline on the global market following Federal Reserve Chairman Jerome Powell's speech at the annual symposium of economists and representatives of global central banks in Jackson Hole, which market participants considered "dovish."
J. Powell expressed confidence in strong growth of the US economy and the need to continue raising the base interest rate at a moderate pace, after which the average assessment by market participants of the probability of raising the rate to 2-2.25% at the September meeting of the Federal Reserve rose to almost 100%.
He also noted that he sees no signs of inflation accelerating significantly above the 2% target, nor any risks of overheating the US economy. Powell also noted the presence of internal and external risk factors that could impact the monetary policy stance, but did not elaborate on these risks. At the same time, he emphasized that the Fed will do everything possible to avoid a new financial crisis.
Last week, the Central Bank of the Russian Federation raised the official exchange rates for both the dollar and the euro. Over the week, the dollar rose by 91.54 kopecks to 67.7911 rubles. The official euro exchange rate increased by 2.2224 rubles to 78.4072 rubles.
The average weighted dollar exchange rate for today's settlements on Moscow Exchange rose by 51.63 kopecks over the week to 67.71 rubles/$$1; the rate for tomorrow's settlements increased by 32.29 kopecks to 67.6182 rubles/$$1. Dollar trading volume for the week amounted to 25.8 billion rubles/$$1.
The average weighted exchange rate of the single European currency for today's settlements increased by 1.9062 rubles over the week, reaching 78.3658 rubles per EUR1; the rate for tomorrow's settlements increased by 1.6878 rubles, reaching 78.3741 rubles per EUR1. Euro trading volume on Moscow Exchange amounted to €3.4 billion over the week.
Short-term interbank loan rates decreased by the end of the week, while medium-term (1-6 months) interbank loan rates mostly increased slightly. The MosPrime Rate for overnight loans fell by 8 basis points (bp) to 7.19% per annum, the MosPrime Rate for seven-day loans decreased by 1 bp to 7.32% per annum. The 1-month rate decreased by 2 bp to 7.45% per annum, the 3-month rate increased by 1 bp to 7.61% per annum, and the 6-month rate increased by 2 bp to 7.62% per annum.
On Tuesday, August 21, the Central Bank of Russia held its traditional weekly deposit auction, during which banks placed 2 trillion 515.1 billion rubles with the Central Bank (with a limit of 2.59 trillion rubles) at an average rate of 7.231% per annum. At the previous similar deposit auction, held on August 14, banks placed 2 trillion 510.6 billion rubles with the Central Bank (with a limit of 3.08 trillion rubles) at an average rate of 7.231% per annum.
To absorb the remaining portion of the structural liquidity surplus, the Central Bank of Russia conducted additional placements of the 10th and 12th coupon bond issues (COBR) on August 21. The Central Bank of Russia placed 188 billion 505.4 million rubles worth of bonds from the 12th issue at a cutoff price of 99.944% from the par value. The Central Bank's offer totaled 669 billion 621.5 million rubles. The 10th issue bond placement totaled 58 billion 833.6 million rubles at a cutoff price of 99.986% from the par value. The Central Bank's offer totaled 201 billion 175.7 million rubles.
The volume of funds held by credit institutions in correspondent accounts and deposits with the Bank of Russia decreased by 42 billion rubles over the past week (to 5.022 trillion rubles).
Source: trn-news.ru
