The Current Depreciation of the Ruble is the Weakest One in the Past Two Years

In the past two years, it is the third time when the ruble lost over 5% of its value for less than a month. The aggregate data on the last three mini-devaluations is shown in the table below.


On the basis of the above data, it is clear that the current depreciation of the national currency is so far not that strong as the previous ones as regards growth rates of the USD exchange rate and is below the price of the bi-currency basket. It is to be noted that in each case the depreciation stopped short of the same mark which exceeded by Rb 2.5 the midpoint of "the floating operating band of the exchange rate policy of the Central Bank of Russia".

The main factor behind growth in demand in currency assets was sweeping growth in foreign assets of Russian banks. Only in April-May 2013, banks' investments in foreign assets amounted to about $20bn. It is to be noted that as early as in the 1st quarter the outflow of the capital through the banking sector amounted to $30bn. Such a situation is not typical of the Russian capital flows. During a long period of time, the balance of capital operations of the banking sector exceeded operations of other sectors.

 

Additional interest to foreign currencies was boosted by the finance minister's remarks in which he assessed the effect from a change in the mechanism of replenishment of the Reserve Fund as an increase in the value of the US dollar by Rb 1 to Rb 2. The above refers to the nominal value of exchange rates. However, a change in real correlations (as adjusted to changes in domestic prices on goods and services) between the ruble and foreign currencies is no less important.

 

In real terms, the Russian currency keeps getting stronger due to a higher inflation rate. In May, the real RUR/USD exchange rate was 1.1% above the maximum of 2008, the RUR/Euro exchange rate was 9.5% higher, while the real effective rate was 9.8% higher. A return to the pre-crisis maximum will take place with the exchange rates of the US dollar and euro amounting to Rb 32.25 and Rb 44.45. Repetition of the results of the 2009 devaluation in real terms (the level of February 2009) would mean that the US dollar and euro should cost today Rb 43.22 and Rb 55.56, respectively. It is obvious that such nominal values of the exchange rates will have more negative consequences for the Russian financial system and the well-being of the population than positive ones from a possible revival of economic growth.

 

М.Yu. Khromov, Leading Researcher of the Structural Research Center