Pavel Trunin, Director of Center for Macro-economics and Finance of the Gaidar Institute, was interviewed by “Ogonek" magazine.
It was written in the periodical that Ruble depreciation became a clear trend in recent weeks. The question is about the degree of impact: whether it is a falling oil price, sharply sinking yuan or issues of global economy? “Rather, it is the global economy situation. No doubt, oil is a rather serious factor, but not decisive so far due to current budget rule. According to expert, reduction of price for black oil to the mark of USD 45-50 per barrel will not dramatically influence on Ruble and rate of exchange of local currency will be rather sustainable. Sharp changes could be expected only when mood of panic develops in the market”.  

Replying to a question whether this situation has a probable scenario in the near future, he said:” Oil market does not experience anything unusual. Today, we may see quite a challenging situation in global economy in general. All major economies are either in a state of anemic growth or on verge of recession with the exception of United States. This means that oil demand will either grow slower than forecasted or even reduce. Price for black oil will be under pressure. In other words, oil will be even more cheaper followed by Ruble decrease if any new shocks or disturbances or an overall deterioration of global economic situation take place”.

Pavel Trunin also reminded on seasonal fluctuations in the exchange rate of Russian local currency. It is known that Ruble exchange rate is determined by balance of payments, i.e. by supply-demand balance of foreign currency. Demand for foreign currency traditionally goes down in Q1 in Russia while Ruble is strengthening, however, this demand goes up by Q3 and 4. The expert added: ”I should like to underline that rise of national currency exchange rate as such as well as scope of its strengthening depends directly on situation in Russian and global economy, resource prices, other risks of different nature”.

Sanctions against Russia are among these risks. Any statements made by Washington on sanctions toughening may influence on capital flows at any time. The latter produce a dramatic impact on Ruble exchange rate as oil price does. The latest package of sanctions has not influenced on the inflow of foreign capital to Russia so far, however, who knows, reaction can be different if sanctions will toughen. At present, share of foreign investment in Federal Loan Bond (FLB) has reached its historical maximum. This means that foreign companies still willingly buy our securities, thus, supporting Ruble, which they buy for purchasing FLB.

In the course of interview, Pavel Trunin advised that reduction of oil prices in 2014 was the main factor that influenced the development rate of local economy.  Pavel Trunin said: "It just so happened that it coincided with “Crimea events and introduction of sanctions. I have seen quite a few of expert presentations related to this topic and the conclusion was practically the same: reduction of oil prices had a very significant impact on economy and as a result led to a crisis. It does not mean that Russian economy has not even noticed sanctions. No doubt, they provided their impact. However, their impact may prove to be even stronger in the long term perspective”.

Full text of interview can be read here.