Six weeks after Russia sent troops to Ukraine, the ruble has begun an apparently unusual recovery, but that is not all it seems, and the exchange rate used in day-to-day transactions is sometimes very different from the official one.
The rapid recovery of the ruble on the Moscow Stock Exchange to levels observed before February 24 has been touted in the state media and by some government officials as proof that the authorities have mastered the country’s finances, despite being hit by the toughest Western sanctions so far.
“Our economy seems to be resistant to Western sanctions, the ruble is visibly hardening,” a state television presenter said on Friday.
The roll rose above 72 to $ on Friday RUBUTSTN = MCX, its strongest level so far this year, moving away from a record low of 121.52 on March 10. Analysts polled by Reuters in late March expected the ruble to trade at 97.50 against the greenback in 12 months.
But anyone who tries to buy foreign currency online at a bank or, illegally, from a currency exchange, or who buys goods and services online denominated in foreign currencies, will find the actual exchange rate significantly worse.
And the ruble’s purchasing power has eroded sharply as companies raise prices for goods, especially those made outside Russia, whose future supply is questionable due to sanctions.
“Before February 24, I was buying boxes of Dutch milk for 2,500 rubles,” said Marina, a Moscow resident, with her newborn baby. “Now the same box costs 4,500 rubles, while boxes of porridge (porridge for children) have risen to 100 from 64 rubles for a box of 500 ml.”
Food prices have risen since February 24, with cabbage and carrot prices rising from 85% to 54% and 54%, respectively, according to Rosstat.
The prices of imported goods jumped even higher, with the prices of some foreign cars more than doubling.
High inflation has been a major concern among households for years as it worsens living standards, a decline that will be exacerbated by the deepest economic contraction since 2009, according to a Reuters study.
A February poll by the state sociological agency VTsIOM found that 64% of people in Russia have no savings.
Extraordinary capital controls have helped restore the ruble in Moscow, where trade has declined since before the Kremlin launched what it calls its “special military operation” in Ukraine.
Nobel laureate in economics Paul Krugman said the ruble had become a crucial goal in defending Russia, “not so much because everything is important, but because it is so clearly visible.”
“So protecting the ruble, no matter the real economy, makes sense as a propaganda strategy,” Krugman said in a New York Times article earlier this month.
Kremlin spokesman Dmitry Peskov dismissed Western claims that the strengthening ruble did not reflect the real economic situation.
RISKS OF THE STRONG RUBLE
But the official appreciation of the currency comes with risks. This makes the sale of goods abroad for foreign currency less profitable, as the revenues that Russia ultimately receives from such exports are mostly denominated in rubles.
This could put pressure on the already affected budget at a time when Russia is cut off from global capital markets and sharply raised interest rates on loans.
“Further strengthening of the ruble will tear the budget apart,” said Evgeny Suvorov, an economist at CentroCreditBank, adding that the ruble’s profits could deprive the budget of funds needed to support companies, banks and households.
As a sign that the authorities are worried about the appreciation of the ruble, something that surprised many experts, Finance Minister Anton Siluanov said his ministry and the central bank are working to make the ruble more predictable.
Market volatility has risen in recent weeks. The balance between supply and demand was upset as authorities sought to limit ruble losses, forcing export-oriented companies to convert 80% of their foreign exchange earnings into rubles, becoming the main driver of the once free-floating currency.
At the same time, the demand for currency was artificially suppressed. Russia has banned dollar and euro cash purchases, introduced a 12% commission for buying foreign currency online, and set the maximum amount an individual can withdraw from their bank account at $ 10,000 by September 9th.
“People have cooled down to forex due to commissions and restrictions on its withdrawal from the country,” said Maxim Biryukov, a senior analyst at brokerage Alfa Capital.
The finance ministry told Reuters that the recent sharp strengthening had affected oil and gas revenues, but did not pose a risk to Russia’s fiscal policy.
The central bank did not respond to a Reuters request for comment on the ruble’s exchange rate.
ISSUE OF INFLATION
In theory, a stronger ruble could help curb inflation, which is on track to jump to 24%, its highest level since 1999, according to analysts polled by Reuters. The central bank targets 4%.
But consumer prices continue to rise due to import disruptions and a lack of foreign components, said Gazprombank economist Pavel Biryukov, who forecasts annual inflation of 27% in mid-2022.
Despite the remarkable gains of the ruble on the Moscow Stock Exchange, banks offer to sell dollars and euros at different rates. On Friday, the largest creditor Sberbank SERB.MM sold online dollars and euros for 79.8 and 85.1 rubles, compared to the official rate of 76.25 and 83.29.
Some exchange offices still sell cash for rubles despite the official ban, but at a different price.
A short walk from the Kremlin, an exchange office behind an unmarked door offered to sell cash for 93 rubles and euros for 103 rubles on Thursday.
A man behind armored glass in the office explained the difference between its prices and the exchange rate of the ruble on the Moscow Stock Exchange with “the need to make money.”
Russia’s tourism industry also has different exchange rates for those who have enough money to spend their holidays abroad. The exchange rate of the euro-ruble to buy trips to Turkey was 85.5 on Friday, according to Coral Travel in Moscow.
(Reuters report; Edited by Nick McPhee)
(Diena Zaidi from CTVNews.ca)
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