The New Reality for the Belarusian Ruble

The situation has drastically changed.

The collapse of the Belarusian ruble last week is only the beginning of troubles, which jeopardise our currency in the near future due to unfavorable events in Russia and in the world.

it has recently seemed that the main threat to the Belarusian ruble is determination of the ruler to make officials reach salaries of BYN1 thousand. Risks related to events abroad seemed to be not so grave. However, the situation changed last week.

As it used to be before, events in Russia - the collapse of the Russian ruble - have caused problems in the currency market of the country. The relation escalation between Russia and Britain, USA, new sanctions of these countries and the conflict in Syria caused it.

A sharp depreciation of the Russian ruble caused the drop of the Belarusian ruble against dollar and euro on the Belarusian currency and stock exchange. To get what comes next, it's needed to find out how serious the situation aggravation between these countries is, and what are possibilities and intentions of Russia to solve arising problems.

The Crisis Is for Long

And this aggravation does not look accidental. Britain moves out of the European Union and it threatens with a complete isolation of its economy. In this regard, Britain leaders seek a chance to preserve some ties with European states. There are lots of means to do it; one of it involves a search of a common enemy. Russia is the best option, it is big enough and locates not far from Great Britain.

The second reason for the political situation aggravation is events in the USA. Opponents of Donald Trump did not accept his victory and try to weaken or even remove him from office, and they use the Russian topic - the desire of the President to improve relations with Russia. That's why he has to promote a hard line.

Moreover, even his inner circle has people who are inclined to increase tension between two countries. In particular, this is Michael Popmeo, the future head of U.S. Department of State. At the Senate hearings last week, he stated that the restrained reaction to Russian aggression over years kept Russia behaving aggressively. "But this will not happen again."

Thus, there are very good reasons for the tension in Russia's relations with Britain and the United States to persist. To eliminate them, it is necessary for Britain to join the EU again, and for Donald Trump to leave the post of President in the USA. As both events seem unlikely to happen in the coming years, the confrontation will continue.

Russia Does Not Know What to Do

There are black spots in the internal policy of Russia as well. On the one hand, despite all challenges and the collapse of the ruble, the financial state of the country is prosperous enough. More over, high oil prices promote a positive Russia's balance of foreign trade; the Ministry of Finance has recently kept the Russian ruble not from decline but growth. And it spends all the income gained in case of excessive price for oil over the base level (just above $40 per barrel) on purchase of currency. This is a very big money. Thus, from April 6 to May 8, it was planned to spend RUB 240 billion on it, which was to make about $4 billion.

Russian currency reserves are very impressive. As of April 8, foreign reserves of Russia equaled to $458.9 billion. Since the beginning of the year they have increased by $27.8 million.

But there are problems. Russia's external debt is now $524.9 billion. Since the beginning of the year it has increased by $6.1 billion. The government's debt equals to $59.9 billion, the debt of the Bank of Russia is $6.6 bln., that is, the major part of external debt is owed by corporations. However, there is still a market of ruble bonds of the federal loan; at the end of February 2018 non-residents of the Russian Federation owned 34.2% of bonds (RUB 2.33 trillion), that is about $40 billion.

The events of the past week showed that such a market is extremely volatile. In this connection, on April 16 the first deputy chairman of the Central Bank Ksenia Yudaeva stated that the bank was considering the viability of introduction of additional measures to restrain currency lending in the Russian Federation. And the Deputy Minister of Foreign Affairs of the Russian Federation Sergey Ryabkov informed that Russia activated work connected with import substitution, reduction of dependence on American payment systems, and also on the dollar as the settlement currency.

That is, n the current situation Russian officials are only studying opportunities. It is not known how much years it will require.

It should be noted that the Russian currency has a specific structure. In 2014 the Bank of Russia distanced itself from issues related to its regulation that unleashed hands of currency speculators and led to collapse of Russian and Belarusian rubles. But a couple of years ago the Russian Ministry of Finance accept responsibility of the CB. According to the budget rule, it has been buying in currency in the domestic market for about 14 months in order not to restrain growth of the ruble. At the same time, it occasionally hinders excessive weakening of the ruble, the threat of which usually occurs at the end of each year; and it organizes the sale of currency, and even sells it if necessary.

Thus, in fact, Russia has the corridor regime of the ruble rate, according to which the dollar rate is relatively free floating in the range of approximately 55-60 RUB/USD. That is, the ruble rate is floating but in rather narrow limits - about 10%, and the ruble rate is artificially understated, and Donald Trump wrote that on Twitter on April 16.

No strategic documents imply this currency control system and corridor parameters for currency, they exist in fact. Perhaps, the devaluation organization of the ruble, Russia violates its obligations under the G20. This means that the system can be changed at any time. In addition, it does not work in force majeures, such as those that happened last week.

In general, the Russian Finance Ministry and the central bank can stabilize the foreign exchange market, because they have much more reserves than they need to solve such problems, but they do not want to do it. They only they stopped purchasing currency within the budget rule. The CB and the Ministry of Finance expect that the current crisis will eventually end, and the existing system of currency regulation will work again, and the ruble exchange rate will fall within the specified range.

Many experts agree with this. Thus, Natalia Orlova, the chief economist of Alfa-Bank believes that after the period of volatility caused by introduction of new sanctions against Russia, the ruble rate can return to its true value, that is 55-60 BYN/USD. Raiffeisenbank experts believe that given current oil prices, sanctions on Rusal and the budget rule, the true dollar exchange rate is 59.7 RUB/USD. But these predictions fail to foresee possible continuation of deterioration of Russia's relations with the United States and Britain.

There are more pessimistic predictions. In particular, the Higher School of Economics believes that in case of increased capital outflow from Russia and possible reduction of oil prices in the second half of 2018, the dollar rate may rise to 65-70 RUB/USD.

It's quite possible. The analysis of reasons of the arisen crisis shows no stabilization in Russia's relations with the Western countries is expected in the coming years. This means that the rate of the Russian ruble will be subject to great fluctuations, and the system of the ruble exchange rate formation may change in Russia. It is possible that it will be decided to take additional measures to reduce the volatility of the ruble, and the Ministry of Finance will decide to move the dollar fluctuation corridor is greater to support the Russian economy, that is to devalue the ruble. And if oil falls in price, the flow of petrodollars to the country will decrease. It is possible to note that according to the forecast of the Ministry of Economic Development, the dollar exchange rate against to ruble should make 64.7 RUB/USD for 2018.

All this creates the new reality for the Belarusian ruble. We should get used to fluctuations of the Russian ruble exchange rate and uncertainty with the regulation procedure conducted by the Ministry of Finance and the Bank of Russia.

It means that it is necessary to prepare for additional depreciation of the Belarusian ruble against dollar and euro. According to results of the last week, the value of the currency basket of the dollar, the euro and the Russian ruble increased only by 0.1%, that is, our currency showed strength. But this is temporary. The depreciation of Russian currency will inevitably lead to a decrease of dollar income of Belarusian enterprises raised on imports of goods to the Russian Federation, which exerts pressure on the Belarusian ruble.

In addition, the sharp fluctuations of this course will reduce its attractiveness in the eyes of the population, which also puts pressure on the ruble.

It can be expected that the situation will somehow be clarified after the decision of the Russian resident Vladimir Putin to change the government. But it is useless to wait on radical changes. The Belarusian financial market steps into the era of uncertainty, despite efforts of the National Bank and the Ministry of Finance of Belarus to ensure stability by holding a strict monetary policy aimed at reduction of income and savings of the population.

Vladimir Tarasov, "Belrynok"