ALEXEY VEDEV: “BUYING CURRENCY AT THE MARKET’S PEAK IS A LOSING PROPOSITION”

The Cabinet of Ministers and the Central Bank reached consensus in the progressive weakening of the national currency: the ruble continues to update the minimum since April 2022. Since the beginning of the year, the ruble exchange rate against the dollar has fallen by about 12%. According to analysts, weakening of the national currency should solve pumping up the federal budget. However, the question arises: how the oil and gas sector will be affected by the rising dollar, given the redirection of flows to Asia, settlements in rupees, yuan and dirhams, the price ceiling and discount on Russian oil, if the FTS and the Ministry of Finance are settling with them based on the dollar estimate.

“As for exporters, they sell not only for rupees and dirhams. Dollars and Euro take part in settlements. This is first. Second-, I think the price of the deal is just influenced by the cross rate,” Alexey Vedev said.

The expert noted that the rising dollar will have a positive impact on the budget revenues and exporters, but it will result in a higher inflation and negatively affect imports and household incomes. According to Alexey Vedev, the ruble rate should be kept within a certain corridor, preventing its excessive strengthening as well as devaluation.

“I think that in April the devaluation will be a significant factor in the acceleration of inflation. It's hard to say exactly by how much, because I assess the devaluation as more of a market panic. I do not think that the rate will stay above Rb80-81per dollar. I think the dollar will go back. With such a price of oil, the dollar exchange rate should be around Rb70. However, there is no doubt: in April, inflation will not drop, it will rather accelerate, year to year, it will probably be above 7%”, Alexey Vedev noted.

According to Alexey Vedev's forecast, the Central Bank will consider the expediency of raising the key rate if pro-inflationary risks intensify. In this context, the expert expects the Central Bank to take cautious steps to raise the rate, not more than 50 basis points (bp).

How can people hold their savings when the Russian market is turbulent: should they buy dollars, which became scarce at this rate, and whether U.S. currency will totally disappear from exchange offices? Alexey Vedev believes that in such an unstable market this is a difficult issue that requires great caution. “Dollar and euro are relatively toxic currencies (taking into account that they can be tied up and anything can happen to them). However, I do not see any deficit. My advice is to hold back from buying such an expensive foreign currency. The experience of the previous year has demonstrated a sharp dollar’s fall from Rb120 per dollar to Rb60 and periodically to Rb53. Buying currency on a spike, on hysteria is a big chance to lose,” Alexey Vedev concluded noting that the dollar and euro are much less in demand by Russians.