Decreasing impact of oil on the Russian economy and the ruble: review by Investing.com
by Yana Shebalina
Investing.com – Before the start of 2014, and the introduction of the first powerful sanctions against Russia due to the situation in Ukraine, hardly anyone thought about the correlation between the ruble and oil prices. But after the onset of the crisis, the correlation between the indicators became evident; in recent years, the cost of oil has directly affected the Russian budget.
And although the national economy tries to move away from dependence on oil and gas, it still remains in this trend. However, earlier this year experts from the Accounts Chamber of the Russian Federation said the budget’s dependence on oil prices was starting to decrease. In the Economic Monitoring digest, prepared by the Audit Department of Economic Development of the Chamber of Accounts, the experts wrote that over the years, the correlation coefficient between the price of oil and the dollar exchange rate went from -0.91 in 2016 to -0.61 in 2020.
The Chamber of Accounts explained that the decline in the index was recorded after the introduction of a floating ruble exchange rate, the change of the Central Bank to an inflation targeting policy and the application of the fiscal rule. So, in 2014-2017, when oil prices fell from $ 112 to $ 24 per barrel, an absolute change of more than 3.6 times, the fluctuation of the ruble against the dollar was 33 to 84 rubles, i.e. 1.5 times.
At the same time, for the period from January 2018, when the fiscal rule came into effect, to February 2020, when oil prices moved within a range of $ 85 to $ 48 per barrel, or approximately 80%, the fluctuation of the ruble against the dollar was in a relatively narrow range of 56 to 70 rubles, or 25%.
As a result, JV analysts concluded that oil prices continue to affect the ruble, but that there are other more important influences. They include the reduction in Russia’s current account balance and external geopolitical risks, including the constant threat of new sanctions.
Andrey Kochetkov, analyst at Otkritie Broker, says the ruble is one of the most undervalued currencies in the world, and it’s not because of the high price of oil, but because of strong fundamentals. Russia has a trade surplus, a current account surplus and very low external debt.
“We are used to oil costing between 3,000 and 3,500 rubles a barrel. In recent years, however, the exchange rate of the ruble has ceased to be correlated with the price of oil. The fiscal rule is partly responsible for this. In fact, the high price of oil began to negatively impact the ruble exchange rate. The higher the price of oil, the more funds the Ministry of Finance spends on buying foreign currency foreign, which puts pressure on the ruble, ”Kochetkov said.
According to data from the end of October 2021, despite the implementation of the fiscal rule, the correlation between the dynamics of black gold and the ruble has reached a record value since the second half of 2020 at 50%. Vladimir Bragin, head of research at Alfa Capital Asset Management, predicts that the ruble exchange rate will continue to be influenced by oil price movements in 2022, in addition to fundamentals. In addition, it will be affected by sanctions and geopolitical risks.
Mr. Bragin concluded that it is fundamentally irrelevant to the ruble whether oil costs $ 60 or $ 100 a barrel in 2022. The only difference, he says, will be the rate of accumulation of foreign exchange reserves. That is why, added the analyst, if we regard the price of oil as related to the ruble, we will do so only as an indicator of the general state of the economy and the markets.
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