ALEKSEY VEDEV: I AM AGAINST THE RUBLE’S ARTIFICIAL DEVALUATION AND DEPRECIATION

‘On the one hand, as far as fundamental macroeconomic conditions are concerned, and bearing in mind the fact that in 2009 the USD / RUB exchange rate was RUB 32-36, at present, when all external conditions impacting the exchange rate of the ruble against the US dollar remain the same as in 2009, the US dollar costs approximately twice as much. Therefore, it is natural that in accordance with the BIG Mac index and the existing studies on the purchasing power parity, the Russian ruble should be deemed to be one of the most undervalued currencies.

Naturally, the case in point is neither the economic sanctions nor capital outflow, but the insanely rigid budgetary rule. For example, any thorough investigation of Russia’s balance of payments for 2018 will indicate that the sanctions-related capital outflows from Russia amounted to $ 7bn, while the RF Ministry of Finance purchased on the market, during that period, almost $ 70bn, or nearly ten times more. Thus, it becomes clear that the main source of devaluation in 2018 was the RF Ministry of Finance itself.

Do I consider the ruble to be undervalued? Yes, of course. And I am definitely opposed to any artificial devaluation of the ruble and to its artificially reduced exchange rate against foreign currencies, which is profitable only for the state budget and the companies exporting crude oil, natural gas and ferrous metals.

As a matter of fact, we have never had a freely floating ruble throughout the entire period of Russia’s contemporary history. And in recent years, we have introduced a unilateral free float of the ruble. That is, the ruble floats freely toward the exchange rate of RUB 150-200 per dollar, and when it begins to strengthen, the Ministry of Finance and the Central Bank interfere and begin to actively purchase forex.

In my opinion, chances for the ruble’s strengthening are very slim, almost non-existent, despite that fact that, from a fundamental point of view, we should be doing our best to set a dollar-target corridor of RUB 40-45. But I think that the budgetary rule will remain as rigid as at present, and the monetary authorities will once again repeatedly purchase huge amounts of forex.

In early June, National Research University Higher School of Economics hosted the 1st Scientific and Practical Conference ‘The Establishment and Development of the Russian National Currency’, timed to coincide with the 26th anniversary of the emergence of the Russian ruble on 1 July 1993. We and our colleagues spent four hours discussing the prospects faced by the Russian currency. The main conclusion was as follows: everybody expected devaluation. I myself see no fundamental reasons for such anticipation. However, I believe that it mostly stems from the devaluation expectations among market participants. If these expectations are rational, chances are high that they will materialize. It cannot be ruled out that the ruble will be devalued by about 15%. I believe that by the end of the year the ruble will bargain in a corridor of RUB 65-69 per US dollar. Many analysts speak about RUB 72–75, but this sounds too nightmarish; I think that.