In spite of all the strengthening of the ruble became a sensation in the first months of 2017. However, the Russian Government, concerned about plugging budget holes, a strong ruble is more shocking and frightening than pleasing. Therefore, the country froze in anticipation of the imminent collapse of the national currency, if not explosive devaluation — not the first in the history of modern Russia. About what is waiting for “wood” in the future, “MK” said the famous economist, head of Department of international capital markets IMEMO Yakov Mirkin.
photo: Gennady Cherkasov
— At the beginning of the year, you predicted a swift and sharp devaluation of the ruble. Since then, however, the ruble strengthened against the dollar and the Euro. Are you ready to revise your prediction?
— Devaluation can happen in a year and a half, or three months, maybe tomorrow. We have experienced three explosive devaluation of the ruble in 1998, 2008-2009 and 2014, and each time the scenario was the same. First, the ruble long hold, proud of how strong they overrated it, and then its exchange rate collapses. Since the mid 1990-ies we have unprecedented increases in the world, a huge gap between the real effective and nominal effective exchange rate. Where the exchange rate of the ruble all the time lags behind inflation in Russia now — more than a hundred percentage points. This gap is partially removed, when it happens the fall of the ruble, and then everything starts anew. That is, we first obtain the so-called strong ruble, of self-glorification on this occasion, happiness is cheap to travel abroad, and then again a big kaboom…
— What affects the rate of the ruble in the current situation and what could cause it roll back?
— The ruble — as a leaf on the wind. No one can say what will happen tomorrow or, for example, next Wednesday. The ruble — raw currency, which depends entirely on oil prices, gas and other raw materials. And the prices of these goods by themselves, change with high amplitude. Remember, in 2016, the crude oil oscillated between 27 and 55 dollars per barrel. And the annual high and low stock price for natural gas differed by 2.3 times. Even gold is another export product — first soared 30%, and then fell in price by 20%. In short, there is nothing more volatile than world prices for raw materials.
In addition, the ruble is directly influenced by the exchange rate of the dollar against the Euro — the two world reserve currencies: the dollar strengthened the ruble is falling, and Vice versa. But in 2016, the dollar swung between 1.04 and 1.15 to the Euro, which for him is a violent storm. The ruble has always been and remains a speculative currency, which greatly affect the residents, but rather, all those who play with “short” money. The scale of these operations, according to the who “lives” in the foreign exchange market is very large. Therefore, the ruble is in advance possible to tell only one thing: his rate will fluctuate wildly and there is always the possibility that roller coaster for the ruble will come tomorrow. And maybe if the stars come together, then a few months or a year.
— But there are some strengths of our national currency, which still keep the ruble afloat?
— The strongest factor is a temporary stabilization of prices of Brent in the area 55-57 dollars per barrel and the dollar to the Euro in the range of 1,05–of 1.07. But how long will this go on quiet — no one can predict. If the “trumpalaike” will become a reality, it may in the future lead to a large fall in world prices for oil and gas — because the US is going to stop the import of fuel, as the largest purchaser of this product.
Another “strength” of the ruble is that our national currency is held by the demand coming from the flow of speculative money, the so-called operations carry trade. In other words, this is when the punter, often a non-resident of the country changes the currency — dollars and euros for rubles and invest them at high interest rates for a short time the deposits, loans or other financial instruments in Russia. The calculation is simple: to make money, then exchange the rubles again for the currency and to bring profit in your pocket. Such operations bring ultra-high yield in rubles — 10% plus the profit from the strengthening of the ruble. The quiet happiness of a speculator! In any country where the local currency is overvalued and strengthened, and the country is the extremely high percentage, the financial market is open, there is literally a storm RAID operations carry trade. This is a classic trigger of the financial crisis. In Russia, he worked three times already. The danger is that operations carry trade, with broad their development at some point, become a soap bubble. We are talking about the broad flow of speculative money into the country, at any time, at the slightest hint to speculators on the increase of risks, is immediately turn back. In this situation, the so-called sudden stop of capital, that is, the speculators will begin to drop the ruble to try to get rid of it as soon as possible, which will lead to his immediate downfall.
— What risks is it?
The reason for the sudden turnaround can be anything. Throw down in oil prices, a marked strengthening of the dollar against the Euro, “financial infection” from anywhere — from Brazil, Europe, — trouble in geopolitics, the decline in the Bank of Russia for its key rate, some political event in our country, in which carry traders are able to see a threat to their capital… We do not know today how ripe a bubble in the foreign exchange market. The situation there is known only to the management of Bank of Russia and the Moscow exchange. But ruble 57-58 to the dollar, which no one expected, causing General concern, especially after a course of 70-80 rubles per dollar, which are all used.
— How the Russian ruble is now overvalued currency, and beneficial to the economy?
Are the most comfortable you can call the course 66-67 rubles per dollar. At the rate of 70 to 72 rubles per dollar, the national currency becomes moderately weak, stimulates the growth of production we have in the country restricts the import and the export of capital. This ruble luring foreigners to create power in Russia, instead of sending us the goods from abroad. The course in around 60 rubles per dollar and is overvalued ruble, making it unprofitable non-oil exports and, on the contrary, luring imports to Russia, creating losses for the budget and barriers for those who would like to produce at home. But all these estimates and exchange rate values are highly variable: inflation and global Finance are regularly changing.
— Some experts ruthlessly criticize the monetary policy of the Central Bank and, in particular, the fact that in 2014 the ruble was sent to the free swimming. Others, on the contrary, praise and declare that the Russian economy was saved from collapse. What people think about you?
— First of all, it’s not really free floating of the ruble. In “fateful minutes” is always followed by an administrative reprimand, and in the spring of 2016, the Bank of Russia began to be engaged in de-dollarization, that is, to configure management of banks to reduce their appetite to the currency. The microstructure of the foreign exchange market is not disclosed, but you can be sure that, as well as in other sectors of the Russian economy, it is the oligopoly market, the market of “large elephant”. And this is not really a market environment and not quite free swimming. Secondly, when the end of 2013 became louder sound theme free navigation of the ruble was already highly overvalued, ready for the next big devaluation. Afloat it was holding oil prices above 110 dollars per barrel. This overvaluation led to the fact that each statement of the Bank of Russia on the free swimming has been a surge in the foreign exchange market, the slide of the ruble down. Everyone in the market knew that “freedom” of the ruble, its output beyond the boundaries of the corridors is an immediate drop in its value.
Thus, the imbalance of the ruble began Central Bank, and finished it a sharp increase in the key rate of the CBR. In short, in 2014 the ruble had a very hard time: the rapid decline in oil prices, a deep strengthening of the dollar against the Euro, the Ukrainian crisis, sanctions… However, there were a lot of opportunities to make the devaluation of the ruble is not as explosive. For example, you could gently lower the ruble, combining market and administrative tools, display it on the exchange rate, helping the economy, not beating like a sledgehammer. Meanwhile, in our financial system, the ruble loose, like a ball on a rope, under the influence of the wind and, most importantly, under the pressure of speculative carry trade. I’m afraid the instability of the ruble will cause a new blow to the economy.
photo: Gennady Cherkasov
No one will deny that the free floating of the national currency in the major developed economies, supersaturated with money and investment is good. But we are not a large economy (figure 1.8 percent of global GDP confirms this), not developed and not rich money: we are less than 1% of global financial assets. Our finances — in fact teenage. Perhaps we went too far with the free swimming, do it too soon and still have to take a step back at some the next crisis.
— What further actions can we expect from the Central Bank, in particular, to change the key rate?
— In the heads of the Central bankers, decision makers to penetrate impossible. But, I feel that they have the idea of a “strong ruble” and confidence that even a careful reduction of the interest rate and the growth of “a little bit” the availability of credit is fraught with the growth of the industry and inflation, the export of capital, dollarization of the economy. The impression that the Bank of Russia is now caught in a trap, and a significant reduction of the key rate — say, 2% — may be a signal for carry traders to suddenly “stop the capital”, as financiers say. Then they all rush from rubles into foreign currency and the ruble collapsed due to the fall in profitability and higher risks of unprofitability of these operations. On the other hand, it seems that the prices for oil have grown, the economy revived a little, inflation is falling — and all have been shouting: reduce the key rate! My prediction is that the reduction of the key rate will be done very reluctantly, maybe 0.25–0.5 percentage points. The Central Bank is clearly afraid for the ruble, and if suddenly the price of oil starts to fall, the key rate may not be reduced.
— How the Russian currency and the Russian economy in General may impact on the monetary policy of the United States, which now is uncertain in relation to change of command in the White house?
— The United States — almost a quarter of global GDP, a third of the world’s financial assets. The dollar is the key reserve currency, it has nominated more than 60% of global Finance. Since the beginning of 2000-ies the price of raw materials is very dependent on the dollar to the Euro. Oil, gas, metals, grain is primarily the prices of commodity derivatives on the stock exchanges of Chicago, new York, London, Russia — raw materials economy, which is functionally dependent on prices and demand on resources, the dollar, and therefore, from what happens in the United States.
Before the election trump the U.S. were in the 16-18-year-old, the third (since 1970-ies) a cycle of strengthening of the dollar formed a long, gradual growth of rate of the Federal reserve system. There is no secret: a common policy controller associated with a multi-year business cycles of the United States. Analysis of cycles was simple: to 2018-2019 — strengthening of the dollar against the Euro, low oil prices (hall 35-65 dollars per barrel), gas prices, metals — somewhere at the bottom. Then at the turn of the 2020s years — bounce and a lot of happiness for Russia.
“Trumpalaike” if it happens, makes the picture more complicated. The first idea trump’s “economy boom”: lower taxes, remove regulatory barriers, less social spending, more investment from the budget, bring back American business from China, India and other peace workshops. If this happens, then the fed, to prevent overheating of the economy, responsible growth of its rate, and this will entail the strengthening of the dollar and downward pressure on prices for oil and other raw materials.
The second idea of trump is to achieve independence from imported oil. This promises Russia has a big problem, because the United States is the world’s largest importer of “black gold”, and the care of this country as the consumer of the world oil market would mean a sharp reduction in international demand and therefore falling prices for oil, gas and other raw materials.
So the “trumpalaike” can permanently keep the prices of oil and gas somewhere in the bottom of the ongoing energy revolution, the desire of mankind to renewable energy sources such as solar and wind, to make them low forever. For Russia, this is the call from the category of “to be or not to be”.
However, in January 2017, surrounded by trump’s suddenly talking about a too strong dollar, that it injures the economy and the weak Euro against the dollar is the currency manipulation. But the weak dollar in the past, namely, in the 2000-ies, when Russia poured currency rain. And now we are still in a space of uncertainty, waiting, as the lead country — the big players, thinking about their own interests.