The Central Bank told about the risks of undervaluation of the ruble

Photo: Ekaterina Kuzmina / RBC

Artificial lowering of the national currency will entail more negative than positive consequences, warned analysts of the Central Bank. Depreciation will not be able to stimulate the growth of quality of goods and productivity

In politics, a weak currency, if applied in Russia, “has more disadvantages than advantages,” he writes in his research note Department of studies and forecasting of the Central Bank. Experts call the four main threats to the artificial depreciation of the ruble.

Support of officials to the detriment of technology

The first negative consequence, which will result in the weakening of the ruble, the slowdown of productivity growth. A weak currency supports mainly labour-intensive (construction, agriculture, public administration) and not a capital-intensive industry (mining and processing of raw materials, production equipment, transport, trade and logistics), as the latter more than they lose from higher prices of imported investment goods in rouble terms. A labor-intensive industry, in turn, are characterized by low productivity. Thus, a weaker currency is “subsidized” industries with low productivity, allowing resources to move into other areas, and thereby “limits the productive capacity of the economy”.

The dollar on Friday, may 12, closed at 57,085 RUB at the end of trading. A barrel of Brent oil cost about $50,8.

The second risk is weak ruble — the lowest growth potential in the emergence of demographic constraints. It can occur in labour-intensive tradable sectors (mining, metallurgy, power, chemical, food industry). This differs Russia from China, where demand for labor was satisfied by population growth and urbanization.

China is not an example

China since the early 1990-ies and up to the 2008 crisis, kept the yuan deliberately low to maintain a low level of salaries in foreign currency. Due to this, Beijing has managed to increase the export of goods at the expense of growth of consumption.

However, the share of added value in traditional industries by the mid-2000s compared with the mid-1990s, declined. “This occurred against the background of faster growth of productivity and wages in capital-intensive sectors and the increasing share of high-tech exports of all exports of goods from China. This structural pressure, in turn, required an even greater depreciation of the yuan to support the demand for labor from the traditional sectors of the economy. At the same time, the development of capital-intensive industries required the prior accumulation of capital and the restrictions of labor demand”, — noted in the review.

Thus, there is a contradiction — support traditional industries prevented the growth of capital-intensive, more high-tech. Subsequently, China had to abandon this strategy, reminiscent of the Central Bank, the weakening of the national currency helped “to cope with the problems of primary industrialization”, but eventually “it ceased to meet the needs of further development of the country”.

The standard of living will fall after the ruble

Third, the weakening of the national currency may be accompanied by low standard of living, since labor-intensive production are usually located in poor countries where labor is cheaper. “Dumping wages by lowering the exchange rate and the rate on labor-intensive production require the entry of the Russian economy in the race to the lowering of wages with poorer Nations with abundant cheap labor. Encourage the development of such production in Russia would lead to deterioration in structure of the Russian economy towards less productive sectors, met on the limited supply on the labour market and would require a sustained decline in wages and living standards”, — stated in the review of the Department of the Central Bank.

Finally, the fourth risk — the potential growth of the technology gap. This will result in attempts of release of goods without the use of the latest technologies through all the same reduction in wages and other costs. “Therefore there is a risk that increased production will not lead to growth of welfare and will be unstable,” — experts say. The welfare “requires the embedding in global value chain at a higher level,” and this requires “the development of human capital and the availability of qualified personnel”.

Whether the authorities are trying to weaken the ruble?

Neither the Finance Ministry nor the Ministry, nor even the Central Bank never said that to pursue a policy of gradual easing of national currency. However, the government has repeatedly said that the ruble “bureucrat”. According to the head of the Ministry Maxim Oreshkin, the weakening of the national currency will occur in the second or third quarter of this year. At current oil prices, the exchange rate will weaken to 62-63 RUB the end of the year, and with their decline to $40 per barrel to RUB 68 on Friday in an interview to “Russia 24” . again said that now is a key factor in the strengthening of the ruble is influx of foreign capital, and in the summer will be “quite a serious current account deficit”.

Verbal intervention the market will not respond, said a senior economist at Danske Bank Vladimir miklashevskii. The impact had only a recent comment by President Vladimir Putin, he adds. At the end of April the head of state refused to speak publicly about the exchange rate, “not to harm”, the market is perceived “negatively,” says miklashevskii. Verbal interventions have a temporary effect, agrees the chief economist BCS Vladimir Tikhomirov.

Video: RBC

Part of the policy of weakening of the ruble are and foreign exchange intervention conducted by the Ministry of Finance, says miklashevskii. However, their volumes are too small to seriously affect the rate of the national currency, said Tikhomirov. In may, the Ministry of Finance will reduce them eight times — up to RUR 8.5 billion, that is, the daily volume amounts to around 0.1% of the average daily trading volume in the spot foreign exchange market (in March the Moscow exchange).

Even greater volume of procurement of the Ministry of Finance, which was observed from January to April (it reached 113 billion rubles per month) is not able to weaken the ruble, which is only possible with intervention in the amount of $500 million a day (about 29 billion rubles), says Tikhomirov. The pressure on the ruble will be, if you start the purchase of foreign currency by the Central Bank, said miklashevskii — it recently “hinted” the head of the Central Bank Elvira Nabiullina. Last week she stated that the regulator considers possible to return to a policy of replenishment of reserves in achieving the inflation target of 4%. However, Nabiullina stated that the Central Bank will resort to such measure only if it will not affect the exchange rate.

The policy of weakening of the ruble will only lead to short-term economic growth, economists warned of the Ranepa and the Gaidar Institute. According to their forecast, this year GDP will increase by 1.2% with a stable ruble, and in 2018 — by 1.8%. With a low rate of GDP this year will grow slightly faster, at 1.4%, but this effect will be exhausted in a year, and in 2018, economic growth will be only 1.5%.

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