Top 5 reasons for the sharp collapse of the ruble exchange rate and what to do about it
Anna Kharchenko, an expert in personal and corporate Finance management, development Director of Cresco Finance, talks about the main risks that affect the fall of the national currency, and gives advice on how to protect your savings from exchange rate hikes
After the recent collapse of the ruble and other rate hikes, many people are panicking and asking whether to buy dollars? The question is related to the fear of further growth of the exchange rate and reaching the mark, for example, 80 rubles for one American dollar.
My opinion in General is that the dollar is always worth buying, because the ruble weakens against the dollar over a long period of time. I think that in 5-10 years, 100 rubles per dollar will no longer shock anyone. Remember how it used to cost 30 rubles? I am. Of course, this does not mean that you just need to buy dollars and invest all your available funds in them. Remember about diversification (the principle of “don’t put everything in one basket”). It is better to buy a particular currency when you have goals, you know the timing of investment and what instrument you are going to invest the currency in.
What factors will affect the ruble? Understanding the reasons that affect the Russian currency will make it possible to forecast its exchange rate more accurately.
While it is likely that additional sanctions will be imposed, the ruble will be under pressure. There is no serious threat to our economy. Do not be afraid of a complete ban on the circulation of dollars in Russia, because for a long time our state, with the help of the Ministry of Finance, buys up huge amounts to replenish foreign exchange reserves. In official documents on the introduction of additional sanctions, we are talking about a ban on state-owned banks to pay in dollars using settlements in the United States. This scenario will hit banks, but it will not prevent them from fulfilling their obligations to their customers.
Crisis in Turkey
Russia and Turkey belong to the” class ” of developing countries. The Turkish Lira lost more than 40 % in August 2018. This fact affects the ruble and currencies of all developing countries. When one of the currencies of such countries collapses, investors reduce their risks and sell off their capital in order to invest in more reliable assets. They provoke a decline in exchange rates.
A weak ruble is beneficial to the state and, in particular, to exporters. The Ministry of Finance buys dollars in large volumes. Now purchases are suspended in order to avoid further weakening of the ruble, but as soon as the situation stabilizes, the Ministry of Finance will compensate the amount of purchases. In the” Main directions of budget, tax, customs and tariff policy ” for 2019-21, the Ministry of Finance laid down the cost of purchasing currency in the amount of 8.518 trillion rubles. This is 2.2 times more than the implementation of the may decree of Vladimir Putin, which involves accelerating the economy, fighting poverty and improving the quality of life (3.9 trillion rubles). The Ministry of Finance plans to buy dollars, euros and pounds.
The high price of oil
The price of oil in the Russian economy is a strong fundamental supporting factor for the ruble, and this positively distinguishes us from the economies of other countries (Turkey, Argentina, India, Brazil, etc.). at the same time, there is no correlation between the oil price and the ruble charts for the same reason that the Ministry of Finance purchases foreign currency.
Don’t forget about inflation. Now the official data of Rosstat state that our money is devalued by 2.5-3 % per year, unofficial calculations say about 11-12 % per year. The added VAT will contribute to this.
The weakening of the ruble is within acceptable limits in comparison with other currencies of developing countries. In the near future, the Russian currency may reach the level of 70 rubles per dollar. I don’t expect a collapse. Later, it is likely to return to the level of 65 rubles. I attach the dollar chart for clarity.
So, we discussed the factors that affect the ruble exchange rate and assumed the cost for the near future. We also understand that the situation can change radically at any time. What should I do? How to protect your savings and save your nerves?
The only true universal recommendation, in my opinion, is to divide the funds into three parts: rubles, dollars and euros. Why?
Here is an example from personal experience. Everyone remembers December 2014, when the dollar cost reached 100 rubles. There were queues at the exchange offices, cars were out of stock because they ran out like hot cakes, and chains of stores were selling off equipment at a frenzied pace. This situation developed because people were afraid to be left with nothing. Those who did not have dollar savings were afraid. I had such savings, but for some reason I sold dollars a few months before these events. Of course, I was stressed when there was such a jump in the us currency.
Since then, there have been many “black Fridays”, “Mondays” and other economic events. It became clear that money can be saved by dividing it into parts, so that in the event of a sharp rise or fall in the exchange rate of a particular currency, the balance is preserved. It is important that with this separation, you will feel calm and confident. Some of my clients, who are cold-headed and risk-averse, were able to make money when they sold some of their dollars at the peak of their price, and later purchased them again during the correction. Now my savings are in different currencies, and I calmly accept exchange rate fluctuations. What about other currencies? Swiss franc, Chinese yuan, Israeli shekel, Japanese yen, and others? There are always options for placement in these currencies, and some of the funds can be devoted to any most exotic currency. But the number of available instruments and the yield in such currencies are not as attractive as in rubles, dollars and euros that are understandable for a Russian person.