A group of economists from the Ural Federal University measured the reaction of the ruble exchange rate to the policies of the Central Bank, supplementing the analysis with such control factors as the price of oil and the volume of foreign trade. The choice of variables is explained by the fact that oil prices have a decisive influence on the exchange rate of the ruble, and the volume of trade can be called a universal factor in the dynamics of the exchange rate.
An article describing the methods, content and research results was published in the Borsa İstanbul Review. As a result of the study, economists have come to the conclusion that the ruble is depreciating for three reasons. First, the pressure of international sanctions depreciates the ruble even with rising oil prices.
“Under standard conditions, an increase in oil prices strengthens the rate of the Russian national currency, but under conditions of economic sanctions, this rule does not work. After the imposition of sanctions in 2014, the ruble did not strengthen even with the rise in oil prices,”the researchers explain.
The second factor is the coronavirus pandemic. The spread of the coronavirus has limited international trade and investment activity: quarantine measures have suspended global production, and great uncertainty has pushed investors to withdraw funds from risky assets. Another consequence of the restrictions is the increase in oil pressure: price wars begin between the oil-exporting countries, as a result of which the price of oil becomes unfavorably low for Russia.
“The long-term policy of the floating exchange rate, which is being implemented by the Russian monetary authorities, also leads to the depreciation of the ruble. While the role of the Central Bank in managing the exchange rate declines, it is largely determined not by administrative, but by spontaneous market forces, the uncertainty of economic policy also makes the national currency cheaper,”emphasizes Kazi Sokhag, research participant, senior researcher at the laboratory of international and regional economics of Ural Federal University.
The opposite effect is facilitated by the controlled floating exchange rate regime implemented by the monetary authorities, as well as the intensification of foreign trade activity. So, with an increase in foreign trade, the demand for national currency increases on the part of exporters interested in exchanging foreign currency earnings for rubles (for example, for paying taxes).
The study of the dynamic reaction of the exchange rate of the national currency to the uncertainty of economic policy was carried out for the first time on the basis of Russian data. The works published so far have focused on the US, EU, Japan and China, Kazi Sohag argues. However, since the Russian economy differs from them in a number of significant features - first of all, in the change of several exchange rate regimes - the conclusions made with regard to foreign countries do not apply to it.
“We tracked the correlation of the listed parameters from January 1, 1998 to September 30, 2020, analyzed 5935 daily groups of data using advanced econometric analysis methods.At the same time, all three econometric methods that we applied - the quantile autoregressive distributed lag (QARDL) method, the quantile-by-quantile (QQ) method and the Granger quantile causality method, - confirmed the validity of our conclusions, "commented Oleg, Head of the Department of Economics, UrFU. Mariev.
The authors of the article are generally positive about the actions of the Central Bank. At the same time, they recommend adhering to a more predictable policy and partially using the methods of regulating the exchange rate of the ruble. “On the one hand, the depreciation of the ruble is beneficial to any Russian producer, because it leads to an increase in prices for imported goods on the domestic market and, consequently, increases the competitiveness of Russian ones. Devaluation is especially beneficial for Russian exporters, as it increases their ruble earnings and improves their long-term prospects and further development opportunities.
At the same time, the interests of producers in this situation partly conflict with the interests of the population: since most of the goods on the Russian market are of foreign origin, in ruble terms consumers are forced to spend more on their purchase,”explains Anna Gainetdinova, specialist at the Center for Regional Economic Research of UrFU …
Recall that since Russia's transition to a market economy in early 1992 (the release of prices in accordance with Yegor Gaidar's liberal reforms took place on January 2, 1992), the Central Bank has implemented monetary and macroeconomic policies to stabilize the exchange rate, depending on internal and external trends. In 1992-1995, during a period of hyperinflation and an unregulated floating exchange rate, the price of the Russian national currency rose sharply: starting at 125 rubles, it stabilized at about 5,000 rubles per dollar.
After a fixed exchange rate was introduced in Russia in 1995, its volatility entered a narrower band. In 1998, the Bank of Russia carried out a denomination, the nominal value of the ruble fell 1000 times, and the rate of the Russian national currency fell, respectively, from 5900 to 5.50 rubles per dollar. In the same year, the policy of a managed floating exchange rate was adopted.
Thanks to this, the exchange rate remained relatively stable and predictable for economic entities, gradually reaching the level of about 30 rubles per dollar. However, in 2014, economic sanctions, falling oil prices and the need to contain inflation dictated a return to a fully market-driven floating exchange rate system. This devalued the ruble by about half. In 2016, due to the continuing decline in world oil prices, the ruble devalued further.