Russian ruble now stable – Agvan Mikaelyan

According to Russian Finance Minister Anton Siluanov, the ruble exchange rate has stabilized at around 90 rubles/$1, which is in line with the Russian government’s projections. Invest Foresight asked Agvan Mikaelyan, Board Member of FinExpertiza audit and consulting firm, how long this stability may last and what we might expect in the near future.

Agvan Mikaelyan, Member of the Board of Directors of FinExpertiza audit and consulting network. Sergey Subbotin / RIA Novosti

— According to the Finance Minister, 90 rubles per dollar is what the government has predicted. Meeting target figures equals stability. Is this good? For the economy, for businesses and for the people?

— Let’s start with stability. In economics, predictability is always preferable to uncertainty. Unchanging exchange rates, unchanging taxes, unchanging government behavior allow for long-term or medium-term planning. The more stability, the easier it is for a company to do business. In investment, stability is also the number one cornerstone. Predictability is at the top of an investor’s list of factors to consider, and predictability rests on stability. If we want development and if we want to invest, we need stability.

Furthermore, the Russian government clearly has certain levers to influence the ruble exchange rate, pushing it upwards or downwards. Over the past two years, we have seen every possible policy measure, including market tools and administrative methods, applied with maximum impact in both directions. Remember the tightening that sent the dollar tumbling to 57 rubles? Those controls were then relaxed abruptly, and the dollar surged to 110 rubles. The state was trying various strategies, which was absolutely the right thing to do. Russian policy-makers are to be admired and commended for that.

Today, we are not just operating in a competitive environment; we are at economic war, where damage is done without guns. The government has decided to keep the ruble at a level that allows it to balance the economy. The state does not really care if a dollar costs 90, 120, or 250 rubles. The majority of the population have become largely accustomed to this state of affairs; they no longer dream about 70, 50 or 20 rubles per dollar.

— Can the ruble ever strengthen to 60 rubles per dollar? Is this even possible? And, is it actually advisable, psychologically or economically?

— Currently, the balanced exchange rate of 90 rubles/$1, around which everything else is also balanced, is a watershed divide. Anything stronger restricts our export flows and import expansion. Anything weaker creates the opposite effect. A drastic weakening of the ruble would not create the necessary impact right now. Yes, there would be a larger supply of money but, since the Russian economy is already overstretched, let’s be honest: we don’t have enough workforce for production. If we focus on manufacturing domestic goods, who will produce them? However, if labor productivity in Russia grows, it would reasonably weaken the dollar.

China has been following the same strategy for about 30 years. This is how long the country has maintained the average inflation rate at 6–7%; and, for the same period of time, it has been able to keep its currency, yuan, relatively weak and prevent it from getting stronger. Although clearly, Beijing has enormous currency resources.  

— In this situation, does the fact that euro has exceeded 100 rubles even matter?

— Euro is a dying currency for Russia. It is living its own life as Europe is not Russia’s number one partner these days. Considering that the eurozone is in recession, it is a dying economic region with a dying currency. I personally believe that in about 10 to 15 years, we will see Europe simply strain itself to the point of a breakdown. Especially since it may be forced to double its military spending to protect itself against a hypothetical threat. It if happens, the days of Europe as one powerful economic entity are numbered. Especially if the European countries fall out with each other.

— Analysts observed an intriguing development: for the first time in a considerable period, the Central Bank maintained the key rate unchanged, and curiously, this had no impact on the ruble exchange rate. Is this a normal occurrence, or could it be an initial warning sign of potential issues?

— The market response was entirely appropriate. The percentage remained unchanged, and the exchange rate remained unaffected.

— But this wasn’t a common occurrence before…

That was when the economy and the currency itself lacked balance. While such instances occurred last year and the year before, the current situation is different. Furthermore, if the rate decreases at the next session – something that will eventually happen – the ruble is expected to strengthen slightly, by around 30 kopecks. This is considered normal.

When everything is in balance, fluctuations are minimal unless there are unforeseen shocks. Speaking of shocks, consider the latest set of sanctions, which, ultimately, went relatively unnoticed. The only significant blow was to the MIR cards. However, does this impact a substantial turnover outside of Russia and friendly nations? Not really.

— So, the final question: should we anticipate 100 rubles per dollar by year-end?

The crucial factor is the outcome of the special operation. The exchange rate will be influenced to some extent by this. Currently, no sensible economist can predict the exchange rate in today’s dynamic reality. Conditions could shift dramatically in three months or three years. Therefore, let’s focus on short-term data today without neglecting long-term strategies.

We must redirect our attention to other priorities: enhancing labor productivity through modern technologies and digitalization, ensuring universal education, and widespread digital transformation. The main step to be taken by 2030 is addressing issues related to the birth rate. These are the primary objectives, not the exchange rate.

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