Toxic bucks: Why Russians trust the ruble more

Nationalistic pride is worth every ruble. And there is data to prove it.

More and more Russians now prefer to keep their savings in ruble, a recent survey has shown, as the Russian currency beat back Western sanctions to rise to a seven-year high against the US dollar.

“Russians consider the ruble the best currency for keeping money since 43 percent of respondents were in favour of it. That’s almost twice as much as in January, and 10 percent more than in March...,” a survey by job search service Superjob said. 

Russian media group RBC said this level of confidence in the national currency is higher than the 15-year study average.

Only 12 percent of respondents now consider the dollar as the most appropriate currency for saving money, while only 5 percent consider the euro. 

In January, before Russia launched the “special military operation” in Ukraine, the dollar was considered the best currency for keeping money by 23 percent of Russians, and the euro by 15 percent. 

The survey was held among 1,600 representatives of the economically active population from all regions of the country.

Though the sample size is very low—to give an accurate picture—for a country with a population of 145 million people but it is indicative of the groundswell of nationalistic pride as Russians rallied behind President Vladimir Putin in his assault on Ukraine.

The study says that the level of confidence in foreign currencies is now about the same as in April 2015, when their exchange rates collapsed sharply after rising in 2014. It is also the lowest level at any other time such surveys have been conducted.

The ruble has also been recognised by the world’s largest agency supplying financial and economic information to both professional financial market participants and individual businessmen. 

In mid-May, Bloomberg named the ruble the best global currency in 2022 because of its growth against the dollar. The Russian ruble became the leader among 31 major currencies monitored by experts of the agency. 

They explained that the ruble strengthened due to measures taken by the Russian government after the introduction of an unprecedented number of sanctions by the European Union and the United States.

The measures also include restrictions on Russian households from withdrawing foreign currency savings.

Market paradox 

But surprisingly, between April and June 2022, Russians bought a record volume of currency on the stock exchange in the past few years—for 0.4 trillion rubles, according to a review of financial market risks, prepared by the Bank of Russia. 

“Over a similar period in the previous three years, individuals also bought currency, but in smaller volumes—0.05, 0.2 and 0.3 trillion rubles in 2019, 2020 and 2021 respectively,” the Central Bank specified.

In total, 13 credit institutions, accounting for 77 percent of the assets of the banking sector of Russia, sold euros and dollars to the tune of 2 trillion rubles between April and June. And it was mostly the currency received by exporting clients. The regulator then recorded a steady inflow of foreign money into the domestic market, as a result of which the banking sector formed excessive currency liquidity.

However, it was the steady inflow of foreign currency into the domestic market, while maintaining the restrained dynamics of imports, that contributed to the strengthening of the ruble. 

“Between April and June 2022, the ruble strengthened against the US dollar by 38.2 percent and by 36.5 percent against the euro,” a review by the Central Bank said. And these figures are changing. The ruble, or more correctly the decisions behind it, do not cease to surprise.

Toxic money 

Contrary to cheapening oil, the ruble is strengthening against the dollar and the European currency. “According to our estimates, such dynamics are associated with shrinking demand for foreign currency and the continued activity of exporters trying to sell foreign currency earnings at a more favourable rate. It’s worth noting that the ruble seems much more confident than other currencies on emerging markets, which are adjusted against the background of the decline in investors' appetite for risk,” say analysts at Promsvyazbank.

Alexei Antonov, head of investment consulting at Alor Broker, draws the conclusion that was impossible six months ago: “The stronger the confrontation between Russia and Western countries, the more toxic the dollars and euros become.”

In July, an almost historical phenomenon occurred: first, the dollar and euro rates were equalised, and then the euro rate was lower than the dollar rate. “The dollar is more expensive than the euro on the Moscow Exchange because we still have an imbalance of exchange rates with the global ones due to the risks of sanction restrictions preventing inter-market arbitrage,” said Dmitry Babin, a stock market expert at BCS World Investments. According to him, arbitrage usually quickly brings the value of the same assets in different markets, including currency pairs. 

The main pillar of the ruble is a trade surplus, and as long as nothing has changed in this regard, the ruble is unlikely to experience serious dips, says Vladislav Silayev, senior trader of Alfa-Capital Management Company. “It is worth noting that the volatility of exchange rates—not only the dollar and euro but also the yuan—will remain high until a certain balance is achieved in the parameters of exports and imports,” the expert believes.

Wrong predictions

In May, when the dollar exchange rate on the Moscow Exchange fell below 66 rubles per dollar and the euro below 70 rubles, it was a big deal. However, many experts said that the strong ruble was not beneficial for Russia in the first place and that the currency would greatly increase in value by the end of May, at most in mid-June. 

Artem Zvezdin, a financial analyst and trader, for example, said that if the ruble continues to strengthen, the government will have to cut budget spending. The strong national currency will also make the manufacturing industry less competitive: Russian goods and services will become more expensive on the international market, and consequently, less in demand.

Bogdan Zvarich, the chief analyst at the financial supermarket Banki.ru, believed at the time that “the range of 70-75 rubles looks more adequate for the dollar/ruble pair. However, in mid-July, the euro and the dollar are worth a little over 57 rubles”.

Back in the spring, analysts said that in the current situation predicting currencies over the next year would be an unpredictable and thankless task. 

However, even the common Russians, who are no longer buying currency but following the changes in it with curiosity, are wondering what will happen to the ruble exchange rate next, and how would the dollars and euros behave in relation not only to the ruble, but to each other?

Leaves unattended

PSB chief analyst Yegor Zhilnikov, quoted by Investment, believes that the growth of the dollar against the euro may continue until the meeting of the European Central Bank, which will be held on July 21. 

“We should not expect a steadily cheap euro. The current situation is mainly caused by global imbalances in world trade. When the ECB rate hike cycle starts, we expect the euro to gradually start recovering its position,” said the analyst. According to his estimates, the dollar “will continue to strengthen, and the euro-dollar quotes may fall to $0.85 per euro”.

Dmitry Babin, a stock market expert at BCS World Investments, also operates with numbers: “The euro may continue to gradually decrease against the dollar with the first target of $0.95, and in the longer term we may see the EUR/USD pair in the range of $0.8-0.9.”

These experts have similar opinions regarding the EUR/RUB exchange rate in autumn and at the end of 2022. Egor Zhilnikov expressed the opinion that "at the end of the year, the euro exchange rate may reach 79.9 rubles. Babin added that “by the end of the summer, we may see the euro around 70 rubles, by the end of the year - 75 rubles.”

No financial expert will say today how much the currency will cost exactly, but time will.