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The Russian economy has too long lived under a floating exchange rate, to be able to talk about “perioralny” of the national currency
While presenting the forecast of the Ministry of economic development for the coming period the head of Department Maxim Oreshkin publicly expressed concern overstated, from his point of view, the ruble exchange rate. Moreover, he even formulated the market the recommendation to proceed to purchases of foreign currency for the future, what was surprising: after months of declining real income resources of the population for such “investment” is very limited and these suggestions in principle are hardly necessary.
However, the motivation of the verbal intervention of the Minister is clear, albeit controversial.
First, the domestic expert discourse traditionally dominated by the idea that the overvaluation of the ruble is harmful to the competitiveness of the national manufacturer. Since the volume is sensitive to changes in the exchange rate of Russian export of finished products is not too high, we are talking primarily about tougher import competition industries working for the domestic market. Such fears are partly justified: in the first quarter of 2017, the import compared to the same period last year grew by almost a quarter.
But the exchange rate is a double-edged tool: what is good for exporters and lenders directly contraindicated importers and borrowers. And the same actors in different markets can simultaneously or successively assume different roles, creating a very very complex picture.
It is therefore very important to analyze the structure of growth of imports: it is possible that a significant portion of the submitted goods and services are not directly competing with domestic counterparts. For example, it may be investment equipment and accessories in Russia is not produced, then the increase in imports will signal the end to the long investment pause and welcome the transition of domestic producers to implement projects of technological renovation. The beginning of a new wave of ruble depreciation may hurt for such projects and contrary to the expectations of the Ministry of economic development will not support, and would slow economic growth.
Secondly, it can play the role of considerations related to the quality of the forecast. Roughly speaking, the new Minister of economic development, of course, I want the first to be prepared under his guidance, the official forecast has not differed very much with reality. For this you need to meet the prerequisites of the forecast corresponding to the representations of the Ministry on a more or less equilibrium situation in the economy. The strengthening of the ruble since the beginning of this year, many experts truly considered excess, and most of the ratings are therefore provided for the return of the national currency to lower levels.
The problem is that Russia is living under the new regime of monetary and exchange rate policy more than two years, and an additional element of volatility are the effects of financial sanctions. Even static (not to mention dynamic) characteristics of the balance of our “small open” economy, including the state of the current and capital accounts of the balance of payments, have not really run-in the actual state of the macroeconomic environment. So hope for a sustainable return of the ruble to the more usual model or a historical point of view, the range can be elusive.
Meantime, the wishes of the Ministry of economic development do not give to come to life powerful factors holding the ruble at a high level. First and foremost is the high level of the key rate of the Bank of Russia, which forms the interest rate differential attracting foreign portfolio investments and, consequently, generates additional demand for the ruble and ruble-denominated financial instruments. So, as of 1 February 2017 was repeated the record of the last five years by the share of nonresidents in the OFZ market (28,1%); in comparison with the beginning of 2012, the investments of foreign investors in this market increased by more than an order of magnitude, exceeding 1.6 trillion RUB.
The Bank of Russia is quite understandable: he spent too much effort to zoom in inflation indicators to target to now loosen the reins, allowing the weakening of the ruble. This situation is fraught with far in the indefinite future so close to his goal, but also undermine the credibility of the principles of monetary policy. The calculation of the Central Bank, apparently based on the fact that the pool of hot money itself will gradually dissolve as the result of a parallel increase this year in U.S. interest rates and to reduce them we have already after the triumphant early hitting an inflation target that seemed unrealistic to many any more a few years ago. How this calculation is justified, time will tell, but the risk of abrupt changes in investor sentiment and capital outflows are presented at the moment is quite serious from the point of view of macroeconomic stability.
The exchange ratio of national currency to foreign currencies is not only as a powerful tool, but also as an important indicator of the effectiveness of economic policy. The transition to the new monetary regime the Bank of Russia seemed so unusual because the state has knowingly abandoned the tools of manual control, pledging to accept the result as it will be in the amount of action diverse market factors. This approach is obviously contrary to almost completely dominant now in the Russian government the system of views concerning the rationality and beneficence of widespread state intervention in the economy. It is not surprising that the officials are constantly tempted to “correct” market outcome, the benefit of all the possibilities at hand. In this sense, the Minister … is not alone: on the necessity of struggle with “perekrestnogo” national currency not so long ago was declared by the President, and the Ministry of Finance launched a program of buying foreign currency in budget reserves, which obviously is a desire to weaken the ruble.
The mood upstairs is wonderfully contrasted with the “voice of the people”. According to the sociology of consumer expectations, the Central Bank already fit happily state that as a result of its transition to inflation-targeting and freeing up the exchange rate of the ruble gained an important psychological victory: the people’s attention to the foreign exchange market decreased markedly. In addition, heeding market demands and urgings of the maximum in recent years the percentage of citizens prefer the ruble as a currency for savings.
Once again convinced that links to the powers that be on the “unwillingness” of the people to various progressive reforms in fact conceal a failure of the authorities to give up their own prerogatives and privileges. Insurmountable barriers to change remain the lack of officials doubt the correctness of his views and the temptation of manual control.
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