Putin urges Russian government to curb strong ruble

By bne IntelliNews July 20, 2016

Russian President Vladimir Putin has called on his government to develop a plan for curbing the strengthening ruble, which has recently showed resilience to volatile oil and other commodity prices prices.

The national currency quickly slipped from an almost nine-month peak on Putin's verbal intervention on July 19. The ruble to US dollar rate went up by 0.9% d/d to RUB63.39 as of 6pm Moscow time, while inching up by 0.3% d/d against the euro to RUB69.84.

Following the president's comments and their effect on the currency market, Kremlin press secretary Dmitry Peskov on July 20 said strengthening the national currency rate requires "fine tuning".

"It [the ruble] requires any measures regarding export-oriented industries," said Peskov, adding that "this requires adjustments that are prepared in advance". 

The ruble's recent strengthening despite unstable oil prices was attributed to the tax and dividend payment period in July-August. The last tax payment period is due to be over on July 25, with up to RUB310bn ($4.9bn) to be paid in VAT, extraction taxes, and excise duties, raising the demand for rubles in the corporate sector.

In addition, up to RUB500bn in dividend payments are due in July and August, some of which would be raised from selling foreign currency.

Reuters speculated whether Putin's demands will mean that the Central Bank of Russia (CBR) will start buying foreign currency off the market and replenish gold reserves to restrain the ruble. However, the regulator did not provide any comments to the agency.

Whatever the means, finding the target ruble rate could be a challenge, reflected in the strong ruble having mixed impact on the balance of payments in the second quarter.

On the one hand, the current account surplus in the second quarter took a sharp fall due to accelerated growth in imports and lower export revenues, raising questions about the effects of the strengthening ruble on the national economy.

However, while the stronger currency undermined the trade balance, it also improved the financial account dynamics, with capital outflow continuing to decelerate and dropping to only $24bn in April-June from $8.2bn in January-March.

Peskov also conceded that the currency rate was a double-edged sword, noting that a balance is necessary "so as not to get entirely immersed in favour of one sector of the economy".

The one sector that would want to see a weaker ruble is energy extraction. On June 28, Fitch Ratings argued that currency flexibility is a main factor securing a stable level of capital investment in ruble terms over a horizon of several years for Russian oil and gas producers.

The real effective exchange rate of the Russian ruble to foreign currencies strengthened by 1.2% m/m in June, having gained 0.5% m/m to the US dollar and 1.4% m/m to the euro in real terms, according to CBR data release published on July 8.

Previous reports mulling the unexpected attractiveness of Russian assets amid volatility steered by Brexit said that the ruble was among the top emerging performers this year.

Although the m/m growth of the currency of the world's largest energy exporter slowed down from 2% m/m seen in May and 3.8% m/m in April, ytd gain as end of June 2016 extended to 7.5%.

In the second quarter, the real effective ruble rate gained 6% q/q, recovering from 4.7% decline seen in the first quarter of the year.

The average nominal rate of the ruble to the euro was RUB78.25 and RUB70.10 to the dollar in January-June overall.

As of the end of June, the nominal ruble to euro and dollar rates decreased to RUB71.21 and RUB64.26 (RUB81.91 and RUB75.17 at the end of January, respectively, and RUB73.5 and RUB66.08 as of the end of May).

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