During the first six months of 2013 the ruble had seriously weakened not only in nominal, but also in real terms, the Central Bank wrote on Monday in its financial review cited by the Vedomosti business daily. In January to March, the ruble has been weakening “under the influence of fundamental economic factors” supplemented with oil price slump, rumors about the United States’ plans to reduce the quantitative easing program and the Russia Finance Ministry’s reports on its entry to the currency market, the regulator said.
In January to June, the U.S. dollar had grown by 7.7%, the euro - by 6.2%, the Central Bank reported. In July, the ruble continued its declining trend. From the beginning of the year it reduced by 8% to bi-currency basket.
Even if conditions on the world goods markets improve, no significant strengthening of the ruble should be expected in the second half of the year, the Central Bank said. First, continuing net capital outflow will exert an additional pressure on the ruble rate. Second, if the currency supply exceeds demand, the Finance Ministry will enter the market. Thus, the ministry’s participation in currency purchase is allowed only when the currency is in excess. Actually, the Central Bank, which still has to sell currency to support the ruble, buys currency for the Finance Ministry.
Officials from the Finance Ministry said the ministry would start buying currency in August. Finance Minister Anton Siluanov’s suppositions that a weaker ruble would be more advantageous for economy were perceived by the market as a signal to forthcoming devaluation.
The ruble has a potential for strengthening, analysts disagree with the Central Bank. August is the period of maximum seasonal weakness in the balance of payments, maximum demand for currency over vacation period and payment of dividends to foreign companies, Maxim Oreshkin from VTB Capital said. “By September these seasonal factors start reducing,” he said.
Aside from seasonal there are two more factors of the current weakening of the ruble, said Alexander Morozov from HSBC, one of the largest banking and financial services institutions in the world. The market has been responding to the news on the Finance Ministry’s entry to the market and on the Central Bank’s refinancing of banks for 12 months - expansion of liquidity would partially influence the currency market. Moreover, the Finance Ministry can place Eurobonds, Oreshkin said noting that the budget envisioned such an opportunity, while an internal loan program had not been fulfilled. A net placement of shares on the domestic market is expected at 500 billion rubles as a minimum. In the first six months it totaled 62 billion rubles.
“However, fundamental factors such as high inflation and slowdown of economic growth rates that have been influencing the weakening of the ruble over the past two years remain and the ruble continues its weakening trend,” Morozov said.