Collapse of the ruble is inevitable: factors affecting the exchange rate
Despite the fact that most of the problems after the 2020 crisis have been neutralized, the global and domestic markets remain unstable, which carries certain risks. According to analysts at Noble Russian Finance Club, a ruble collapse is inevitable, but it may not happen soon.
Oil quotes are steadily going up and the worst forecasts of experts concerning the collapse of the Russian economy as a result of the pandemic have not materialized. Reserves also remain at high levels.
The other day, the Central Bank said that it would not revise its key rate downward for now. The regulator said it intends to raise it in the near term. Such a step would provide an opportunity to increase the attractiveness of the ruble for carry trade transactions.
However, at the same time the Russian currency is weakening against the dollar and this trend has been observed for a long time. Moreover, even difficulties in the U.S. economy did not affect the growth of the U.S. money.
There remains a great risk that speculators can take advantage of the vulnerability of the local market, the main factor of which is foreign trade difficulties and political processes. Such a situation was already observed in 2014-2015, when the problems on the global stage were exacerbated by the activity of speculators. An important reason now is Nord Stream-2 and the U.S., which create all sorts of obstacles to its operation. Moreover, Washington exerts pressure not only directly on the pipeline operator, but also on its partners in Europe. The poisoning and imprisonment of oppositionist Alexei Navalny has played a negative role in Russia’s political processes with other countries. It triggered a new wave of anti-Russian sentiments in the European Union, threatening the implementation of a number of projects and the prospects for cooperation between the countries. In addition, new aggravations in Donbass are causing a negative reaction on the part of world governments and are affecting the economy and the ruble exchange rate.
Such periods of market weakness are an ideal moment for speculators to act aggressively against the ruble. The exit from the situation is complicated by the limited possibilities of the Central Bank, which cannot use reserves. In addition, an increase in the key rate has a negative impact on the economy, slowing its development. Another factor is experts who believe that the weak ruble will stimulate export supplies and become the optimal tool for replenishing the budget.
Analyst of Noble Russian Finance Club is confident that under such circumstances we should expect the ruble collapse; however, he does not know yet how soon it will happen. At the moment the situation is quite positive, even the difficulties in the political arena do not critically affect the fluctuations of the exchange rate. However, due to the fragility of the currency, any new trigger can cause serious problems.