In the last few months, ruble has been surprisingly stable. For the currency, that has lost more than half of its value in the last 2 years, the recent period of stability is definitely something to pay attention to.
Bank of Russia has analyzed the unusual ruble's economic performance in the first 6 months of this year in their latest issue of Financial Review. In the past several months, Russian national currency has remained at the level of 65 rubles per U.S. dollar, even though the oil prices have been far from being stable. Normally, the value of ruble is closely related to the oil prices, as Russia's economy is heavily dependent on the oil industry. However, in the last months ruble has showed relative stability and immunity to the changes in the oil industry.
Russian RBC Money says that ruble has been showing lower volatility as compared to another oil-dependent currency, Kazakhstani tenge. Interestingly, RBC's analysts say that the Central Bank of Russia has not invested additional funds into ruble's stability over this period. What's the secret?
The Financial Review says that ruble's decrease in volatility in relation to dollar and the oil prices between March and May of this year, contradicted the predictions of most analysts. Also, the currency's latest performance doesn't fit in the standard model of the currency market behavior, they say. According to the Bank of Russia, the unusual stability of the Russian currency can be explained by 3 factors: the increased demand for the currency from the non-residents, the major Russian corporations taking on the active dividend policy and getting rid of the euro/dollar earnings, as well as the growing uncertainty regarding FED's rates and their role in destabilizing ruble.
More than that, the sanctions regime against Russia has also had an impact on ruble: consumer demand decreased by €10 billion in the country while Russia's export is down whopping 35%. According to RBC's analysts, this also has helped the currency to remain less volatile to dollar these months.
However, the seemingly stable position of ruble in the past months only looks stable if it is compared to the currency's previous performance that looked more like a rollercoaster (see the graph above). Indeed, Russia's national currency has demonstrated disproportionately weak dependence on the oil prices, yet it is still far from maintaining any steady results or continued effect on its volatility.
RBC's analysts say that ruble will continue being relatively stable in the next few months, however, they expect the currency to lose in value by December when the deficit in the Russian Federal budget will get more profound. Due to the fact that earlier this year the oil prices were much lower than what the Russian government had prepared for, $38 per barrel as opposed to the expected $50, the hole in the Russian Federal budget is predicted to reach somewhere between 500 billion and 800 billion rubles. In this situation, the government will try to compensate for the budget deficit with the Federal Reserve funds. This can be expected to drag the ruble down by 10% again.
In other words, even though the currency has been showing some promising results these months, it is still too soon to talk about any stability of ruble in the current state of Russian economy.