Who benefits from a weak ruble
The question of whether Russia needs a strong ruble is not quite correct. It would be correct to ask the question whether the Russian economy is strong ruble? And the answer lies on the surface, it is obvious – no. The majority of the public would resent such a direct answer, but if you delve into the current economic situation, it all becomes clear.
What we have today? Sanctions that limit the country’s economic growth, dependence on the exchange rate (particularly against the dollar), the dependence on raw material prices, strong competition, high interest rate and the budget deficit. And this is not a complete list of problems of the Russian economy. What will change, if the ruble will be strong?
On the one hand, will increase the purchasing power of the population, citizens will be able to afford more than now. Prices for some goods and services will decrease. Taken together, this prostimulirujte domestic demand. But the question is, will the citizens buy more domestic products or will prefer foreign or not will spend their money abroad? And if so, what good does it do to the economy? The only one who stands to gain by that is retailers.
The strong ruble means inflation is low, and therefore the key rate will decline, loans will become more accessible to citizens and legal entities. on the one hand, this stimulates consumption and business development. On the other hand, today, Russian banks are limited in attracting Finance from abroad, respectively, a situation may arise when banks are unable to cover the resulting increased demand for credit then the rate will start to grow again. Thus, the positive effect is controversial, but rather short-term.
The strong ruble may please the manufacturers. Yes, you can, especially those whose production is tied to the imported technology and raw materials. If today is the high cost of foreign raw materials and technologies encourages to develop their own technology, go to domestic counterparts, the strong ruble will kill this trend in the Bud. Products from other manufacturers from a strong ruble will lose competitiveness in external markets, as it will cease to be cheap. Exporters of raw materials, the main taxpayers and breadwinners of the budget, a strong ruble is also not necessary, this will lead to a drop in revenues in rubles. The decrease in revenue is the decline in revenues.
Perhaps the undeniable advantage from a strong ruble will be the growth of foreign exchange reserves of the Central Bank of the Russian Federation and the reduction of the cost of servicing the external debt.
Giving the economy a weak ruble? The falling incomes, the decline in domestic demand, high inflation, high interest rates on loans, the rising cost of servicing the external debt, higher costs for producers working with imported raw materials and technology. Here is a list of the major drawbacks of the current exchange rate.
However, on the other hand, a weak ruble set manufacturers from several industries to choose either to develop their technology and to produce its product, or close the business. Only once in the harsh conditions of the Russian business was faced with the need to have domestic analogue in the whole, and the economy is good, as it forces to gradually recover and develop.
The greatest benefit from the weak ruble gets the budget and exporters. Export revenues in roubles grow, and thus increase revenues. Taking into account the economic program for the next 6 years, which was announced by the President, the tax revenue is one of the main sources of budget revenues. The demand for government bonds fell, also the risks of sanctions against BFL, the situation develops in such a way that in the near future Russia will refuse from external borrowings, and in this case, the basic rate will be on income from exports.
It is worth mentioning that reserve funds, due to which the economy managed to hold from 2014 to 2017, is empty and must be replenished, and they are replenished at the expense of most of the profits from the sale of oil and gas abroad. Moreover, the Finance Ministry kills two birds with one stone: buying a currency on the domestic market, it supports the ruble is in a weak condition, and replenishes reserves.
Finally, a cheap ruble makes Russian assets, goods and services attractive to foreigners. Yes, we are not seeing the inflow of foreign investment due to geopolitical risks, but the trade turnover of Russia is growing.
In fact, in the weak and the strong ruble, there are pros and cons for the economy, but for the current situation of a weak ruble profitable as soon as the situation will begin to change for the better, the government would allow the ruble to strengthen. Overboard is only the population that is in crisis is not perceived as a tool that facilitates the development of the economy.
At the end of October we are seeing a decline in the ruble pairs, however, oil prices are falling, in the USA there are elections for Congress and the discussion of the next package of sanctions against Russia. If sanctions will be taken in November, the ruble will become a new hit, you need to be prepared for a possible wave of weakening of the ruble. In the medium term threat to the ruble is the growth rate of the U.S. Federal reserve. In fact, by the end of the year the rate may be higher than current levels.
The Deputy Director of analytical Department,