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The exchange rate of the Russian ruble against the dollar has stabilized, and in February 2024 it will consolidate around the level of 90 rubles per unit of American currency. This became possible as a result of the fact that the Russian economy reached equilibrium in the levels of imports and exports. Stabilizing the exchange rate is important for exporters, investments and the consumer market.
Based on the results of 2023, it becomes clear that the Russian economy is coping with the negative impact of economic sanctions. The country’s export potential has been preserved, which was facilitated by effective interaction with friendly countries and the prompt development of new approaches to supporting national producers. No one can say for sure what will happen to the ruble in 2024, but volatility is decreasing.
The future of the ruble and euro in 2024
What will happen to the ruble and yuan in 2024?
Ruble in 2023 – reasons for turbulence
Over the past year, dollar/ruble exchange rate has fluctuated greatly. After an initial 70 rubles per dollar in January, the ruble began to lose value, falling by 40% by the fall. In mid-August, the dollar exchange rate on the Moscow Exchange reached an annual peak of 101.7 rubles per dollar. In response, the authorities became agitated and introduced strict measures. An increase in the key rate by almost one and a half times helped stabilize the ruble for a short time (on average, the dollar was worth 96.7 rubles). By October, the rate had risen again to the psychological level of 100 rubles per dollar. The government introduced new rules for exporters to sell foreign currency, and the trend changed dramatically – by the end of October, the ruble strengthened to 93.4 rubles per dollar, and by December 25 it was trading at 92 rubles per dollar.
The Forecasts magazine interviewed experts who suggested what the degree of instability might be. This year the dollar will be valued at 90-95 rubles, as most of them predict. Twelve out of 17 suggest such a development. However, two more predict an even higher rate (up to 100 rubles), and three are confident that the ruble will strengthen to 85-87 rubles per dollar.
Source of turbulence
According to Financial Empire analyst Amelia Strana, over the past year and a half, each phase of the weakening of the ruble was characterized by different impulses in which different parties played.
In the summer of 2022, the dynamics of the dollar exchange rate underwent significant changes; a jump from 50 rubles to 80 rubles occurred in the fall of 2022 due to a sudden increase in import volumes. Further growth of the exchange rate, exceeding 90 rubles per dollar, was caused by unexpected changes in exports generated by the collapse of financial flows and the influence of speculative market factors. Predicting further events was difficult due to the instability of interest rates and expectations of a weakening of the ruble, indicates.
A completely different turn of events occurred with the rise in the value of the ruble in 2023, which was largely determined by government financial transactions and increased lending volumes. Sharp fluctuations in the exchange rate inexorably responded to the forecasts and comments of government officials.
Currently, the level of the course has resumed its scientific justification due to the existence of many factors. The Russian economy has reached a point of balance between exports and imports, the exchange rate has stabilized at 90 rubles per dollar, which is acceptable both for exporters and for the consumption and investment markets, First Deputy Prime Minister Andrei Belousov said on December 21. In addition to the president’s instructions to sell export proceeds, the cooling of imports and the postponement of seasonal increases in oil prices played an important role.
Fundamental forecast of the ruble in 2024
To form a stable balance and ensure the replenishment of the financial flow by the Ministry of Finance, experts from the New Path association of economists believe that the level of the mutual exchange rate of the currency in 2024 will remain stable in the range of 90 up to 100 rub./$. Senior analyst at SberCIB Investment Research Rodion Lomivorotov supports this point of view, arguing that the ruble exchange rate will remain at an average level of 90 rubles/$. According to Gazprombank specialist Pavel Biryukov, the average annual ruble exchange rate in 2024 will be about 93 rubles/$.
According to the chief analyst of Promsvyazbank Denis Popov, economists’ estimates, according to the forecast of the Ministry of Economy, indicate a planned decline in the dollar/ruble exchange rate in 2024 to 90.1, in 2025 – to 91.1, and by 2026 – to 92.3.
The group that participated in the Vedomosti magazine survey included 17 different organizations and experts, including banks, investment companies, rating agencies, universities and professional associations.
The widening current account surplus will provide significant support to the domestic currency, rising to $62 billion in 2023 from $58 billion the previous year. At the same time, reducing the need for repayment of foreign currency debts in the economy will reduce the degree of dependence on external liabilities to $40–45 billion, in contrast to $55–60 billion last year. Expert Biryukov notes that the continued intervention of Central Bank in the foreign exchange market and the establishment of mandatory standards for the sale of foreign currency by exporters also have an impact on the stability of the national currency. But an unstable situation may arise due to the aggressiveness of the market and the information background, geopolitical factors and the actions taken by the authorities during the election campaign. In addition, an additional risk for the ruble may be a change in monetary policy of the Central Bank of Russia.
The degree of volatility will, to a large extent, be set by global aspects, however, if you use the apparatus of the government and the Central Bank, then they will limit the range of probable fluctuations. These are interventions by the Central Bank of Russia within the framework of the established fiscal mechanism, mandatory sales of currency by exporters and methods for controlling transactions with subsidiaries of foreign organizations.
If the dollar exchange rate again tries to break above the 100 ruble mark, the authorities will begin to take new actions within the framework of administrative control. This could lead to tighter restrictions on the withdrawal of capital, a ban on the payment of dividends and loans in foreign currency, as well as restrictions on the activities of foreign traders. The possibility of establishing restrictions on the turnover of rubles abroad, increasing key rate to 17–20%, increasing the sale of the yuan foreign exchange reserve, banning the purchase of shares by Russian companies from non-residents and slowing down the exit of foreign companies from the Russian market cannot be ruled out.
Impact of government spending
The use of the 2024 budget proposed by the Russian government reflects a desire to devote significant resources to strengthening the armed forces. This initiates a global shift in the country’s priorities, where military spending outweighs social spending. The Kremlin argues that the war with Ukraine and the West is becoming a driver of economic progress, and a massive increase in military spending underscores its intention to continue confrontation. The funds will be used to upgrade arsenals and, if necessary, finance more aggressive military action, including the possible imposition of martial law or mobilization.
Next year social spending is planned to increase by a huge amount from 1 trillion rubles to 7.5 trillion rubles. Defense spending, including the army, police and prisons, will increase from 3.2 trillion rubles to 3.5 trillion rubles. But spending on education and medicine will still remain at the same level, which means that in reality they will be reduced next year.
Despite these spending promises, the Department of Economic Development forecasts inflation will rise by just 4.5 percent next year. The economy is expected to grow by 2.3 percent, and the average price of Urals oil will be $71.30 per barrel (despite the $60 price cap set by the G7). The expected dollar/ruble exchange rate will be 90.1 rubles.
In other words, the increase in spending on military and social needs will be financed through the gradual depreciation of the national currency, which is already actively happening. Containing inflation is possible thanks to a moderate budget deficit.
By now, defense spending is planned to almost double compared to the current year. Although this is slightly less than the 12-17% of GDP that was once spent on defense during the Cold War, this expenditure is comparable to US military spending in the 1980s. The rise in military spending began in 2011, when the Russian government launched a nine-year rearmament program estimated to cost around 20 trillion rubles.
The Kremlin is actively preparing for a long war on the territory of Ukraine, and may be considering the possibility of obtaining significant economic benefits from such a scenario. Weapons stimulate industrial prosperity, which is reflected in economic growth. Industries directly related to the war are showing impressive growth. There is also an unusually high rate of growth in industries indirectly related to the war effort.
Increasing costs for the military and social needs lead to economic instability, especially during peacetime when dependence on imports contributes to high inflation. This involves the risk that interest rates will continue to be high, which could negatively impact investments. The Kremlin, investing all its efforts in increasing military spending, puts the country at risk of permanent military action, which in turn worsens the economic situation and the standard of living of the population.
Rate forecast based on technical analysis
What will happen to the ruble in the near future can be predicted using technical analysis. In technical analysis, the main thing is to determine the main and secondary trends, and then analyze the graphic patterns. Graphic figures make it possible to determine the likelihood of trends continuing or reversing. The daily chart of the value of the dollar shows the presence of a double top, which reversed the previous upward trend. This trend continued from 50 rubles per dollar to 100. Now a new downward trend is emerging. For this downtrend, it is important that each subsequent top is lower than the previous one. Here these peaks are visible on November 7, November 21 and December 4. The formation of a trend corresponds to the definition of a downtrend.
The current consolidation is a struggle to make the previous reversal low just above 88 resistance (because prices are now below this price), or leave it as support. A new signal for the formation of a bearish market may be a steeper slope of the price decline, the bearish channel. For now, the only thing ahead is reaching the lower boundary of the current channel and at the same time the previous reversal top just below 82.
Results
At the beginning of 2024, the ruble is expected to strengthen compared to the annual average against the background of increased rates and administrative decisions, but by the end of the year it is expected to decline. The first four months of the year are usually favorable for the ruble due to low demand for the currency. During this period, it is possible to strengthen to 85 rubles per dollar. The subsequent lifting of temporary foreign exchange measures and the maintenance of import growth in the context of increasing investment activity of the state and business will lead to a shift in the exchange rate closer to the 100 ruble mark.
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