Counter-speculation on the Ruble

Note kindly translated by Anne Marie de Grazia

The day of Monday 22nd witnessed the sustained rising movement of the Ruble. It was even noteworthy by a speculation IN FAVOR of the Ruble and AGAINST the US Dollar as is proven by the movements on the exchange market. We are seeing a spectacular reversal of last week’s situation. This reversal leaves all the “experts” who, like birds of ill omen, have been relentlessly forecasting the worst for the Russian economy, with their jaws dropping. It confirms the trust that one can maintain in the fundamentals of the Russian economy, which remain quite healthy. A little explanation of what happened remains nevertheless in order.

As a matter of fact, the day begins with an exchange rate at 58 rubles for 1 USD. The speculators sell their dollars and massively buy rubles before the beginning of the session, which brings the exchange rate to fall to 56 r/1 USD within minutes, thus creating an appreciation of the ruble. It goes up after these buyings, then starts appreciating again and reaches 54,5 rubles pour 1 USD around 15h. The speculators then sell their rubles in order to buy dollars, provoking a rise of the exchange rate to 56r/1USD but the demand on the ruble is such that this depreciation of the ruble doesn’t last and it rises back, at the end of the session, to the vicinity of 54r/1USD.

Chart 1

Movements of the ruble against the dollar on Dec. 22

 A - chart

Obviously, this process is the result of the counter-attack led by the authorities since last Wednesday. It also corresponds to the formalizing of the announcement of the support of the Central Bank of China (the PBOC) guaranteeing the Central Bank of Russia, whose reserves are already considerable, that it will be able to count on the immense financial manoeuvring resources of the PBOC (the reserves of which are estimated at 4000 billion dollars). It is quite clear that there is no longer a future for a speculation against the ruble. But there are still speculators on the markets. The latter therefore decided to play in favor of  the ruble. One can, and one must, consider this to be a positive sign, but a few things must be heeded:

  1. A speculation in favor  of the ruble signals nevertheless the persistence of speculative anticipations on the exchange market. So, calm has not returned yet.
  2. This speculation in favor of the ruble could take the ruble too far. If it is a good thing for the ruble to return to an exchange rate comprised between 50 and 55 rubles for 1 USD, the ruble should not climb beyond 50 (maybe up to 42-45) for, in this case, there would result fiscal problems for the government. As long as the price of the barrel of oil will remain at between 55 USD and 60 USD, the normal exchange rate for the ruble will be situated between 50 and 55 rubles for 1 USD. In order for the ruble to be able to climb back beyond 50r/1USD, we must wait for the barrel of oil to climb beyond 70 USD, which should happen around March-April 2015.
  3. The problem risks becoming acute as early as the beginning of January. Loan-repayments of companies and of banks will be very low in comparison with what they were in December. Purchases of imported products (in USD) will dry up after the Christmas holidays. Everything is falling in place for a brutal hike of the ruble which could turn out to be as destabilizing as its brutal fall has been. Of course, such a movement can be controlled by the Central Bank which will buy dollars (and sell rubles). But, if this mechanism can allow it to shore up its reserves, it will result in injecting rubles into the economy, in a period when the inflation will be very high.

As a result of these various factors, the question of a possible control of capitals remains on the table in Russia today. The government doesn’t want to hear about a control of the exchange rates, and it is probably right in the present situation. But the control of capitals  will result in letting the exchange market function freely, while regulating the amount of capitals which, coming or going, land on this market. As a matter of fact, it is already what the Central Bank of Russia has done by temporarily modifying its prudential regulations for banks on December 17 in order to limit their needs in dollars. The introduction of a regulation of the short term movements of capitals, whether entering or exiting, would then be a complementary measures to those already taken.

On Bank of Russia measures to maintain stability of

Russian financial sector


  • 1. The Bank of Russia will impose a temporary moratorium on recognition of negative revaluation of securities portfolios of credit institutions and nonbank financial organisations that will decrease market participants’ sensitivity to market risk.
  • 2. In order to limit the impact of revaluation of assets and liabilities denominated in foreign currencies on prudential ratios of credit institutions, the Bank of Russia intends to grant credit institutions a temporary right to use the exchange rate computed for the previous quarter when calculating prudential requirements for operations in foreign currencies.
  • 3.The Bank of Russia will improve the mechanism to provide foreign exchange funds to credit institutions. If required, additional various maturity auctions are planed under the FX repo mechanism. The mechanism to extend loans secured by non-marketable assets to credit institution (in compliance with Regulation 312-P) provides for extension of foreign exchange loans secured by foreign currency denominated credit claims on nonfinancial organisations to banks.
  • 4 The Bank of Russia considers the central counterparty at the Moscow Exchange as an important institution of centralised liquidity allocation to all financial market participants, including both credit institutions and non-bank financial organisations. In order to ensure stable stock market functioning, if required, the Bank of Russia will provide support to the central counterparty at the Moscow Exchange for market participants to be convinced of the reliability of the centralised clearing and its uninterrupted functioning.
  • 5. In order to enhance interest rate risk management, the Bank of Russia intends to take the following measures:
    • —    to temporarily (till 1 July 2015) refrain from imposing restrictions on the values of effective interest rate on consumer loans (borrowings) when credit institutions and microfinance organisations, credit cooperatives and pawnshops enter into consumer loan (borrowing) agreements;
    • —    to expand the range of standard market deviation of interest rates on household deposits with banks from calculated average market maximum interest rate to 3.5 percentage points (instead of current 2 percentage points).
  • 6. In order to enhance credit risk management, the Bank of Russia intends to take the following measures:
    • —    to enable credit institutions to refrain from decreasing debt service quality rating irrespective of the assessment of financial standing of a borrower regarding loans restructured due to, inter alia, loan currency change irrespective of the loan maturity (principal amount of debt and/or interests) and the interest rate;
    • —    to enable credit institutions to take a decision not to decrease the rating of the borrower’s financial standing for the purpose of loan loss provision accumulation if the financial standing changes due to the impact of restrictive economic and/or political measures imposed by certain foreign states (supplement to Bank of Russia Letter No. 184-T, dated 21 October 2014);
    • —    to expand the term during which the credit institution is entitled to refrain from increasing the actual provision on loans extended to borrowers whose financial standing and/or debt servicing quality and /or quality of collateral deteriorated due to emergencies from one year to two years.
    • —    to expand the term during which the credit institution is entitled refrain from creating provision on loans extended for investment projects preserving other current minimum provision requirements depending on the maturity, default on payments on investment loans or their insufficiency;
    • —    to cancel the increased risk weight in respect of loans extended to leasing and factoring companies participating in the banking group including the lender bank;
    • —    to introduce a decreased risk weight in respect of ruble denominated loans


The government has two to three weeks to take these measures. They would have the immense advantage of disconnecting the interest rate from the exchange rates market. This would allow to bring down the interest rate to a level more compatible with investments, that is, bringing it back to 10,5% whereas it is presently at 17%. Otherwise the government will be forced, if it doesn’t want to sacrifice investments, to use administrative methods (such as investment subsidies or enhanced credits) in order to compensate for an interest rate that is much too high.

Russia has weathered a grave speculative attack and seems to be out the woods now. But this does not yet guarantee a return to a normal situation. If the government wants to limit as much as possible the shock on growth of this attack and put into place the conditions which will allow activities to develop while taking advantage of the benefits of a broad depreciation of the ruble, which brings back its competitiveness to the economy, it must imperatively act in a decisive way in the weeks to come.


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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