What happens when the Ministry of Finance buys foreign currency. The Russian Ministry of Finance began purchasing foreign currency on the market

The business publication Bloomberg predicted that if Western sanctions are lifted, the Russian national currency will strengthen by 5-10% and will cost about 50 rubles per dollar. However, this scenario is unlikely to suit the financial authorities of the Russian Federation. That's why, according to Bloomberg, Vladimir Putin was in no hurry to discuss with the US President Donald Trump lifting restrictions.

If the experts of the American publication are right about something, it is that the Ministry of Finance considers the current exchange rate of the ruble, which is around 60 per dollar, to be too high. Reuters published the department's official calculations on the main parameters of the budget system and the ruble exchange rate when implementing the temporary budget rule on the use of additional oil and gas revenues to purchase foreign currency on the market.

It turned out that the Ministry of Finance considers the current ruble exchange rate “impossible.” According to department analysts, with an average annual oil price of $40 per barrel, the ruble should cost 69.42 per dollar. The federal budget deficit will amount to 3.1% of GDP; 1.8 trillion will have to be spent from reserve funds. rub. At current quotes of 55 rubles. per barrel The budget deficit without applying the budget rule will be 1.5% of GDP, and the expenditure of reserve funds will be reduced to 464 billion rubles. But if the financial authorities switch to the promised constant purchase of foreign currency into treasury accounts, the budget deficit will be equal to only 0.7%, and the reserve fund will be replenished by 241 billion rubles. True, the ruble exchange rate will weaken by about 10% and amount to 64.9 rubles. for a dollar.

The financial department believes that without applying the budget rule and devaluing the ruble, balancing the federal budget is possible only with an oil price of $76 or higher. In the context of a controlled devaluation of the ruble, the budget is completely balanced at an oil price of $61. Moreover, according to the Ministry of Finance, such a controlled devaluation will not formally be a departure from the floating exchange rate policy followed by the Central Bank.

Let us recall that on January 25, the Ministry of Finance announced that from February it would begin to carry out operations for the purchase or sale of foreign currency on the domestic market with the participation of the Bank of Russia. As stated in the message, this will be done to “increase the stability and predictability of domestic economic conditions and reduce the impact of volatile energy market conditions on the Russian economy and public finances.” As long as the price of a barrel of Urals exceeds $40, the Ministry of Finance will continue to purchase foreign currency in an amount equal to these additional revenues. If the price falls below this level, the Central Bank, on the contrary, will begin to sell currency in the amount of missing revenues.

True, initially representatives of financial management said that the implementation of the new budget rule would have virtually no effect on the ruble exchange rate. But, as follows from the Ministry of Finance’s calculations, the ruble will still have to weaken by 10% to balance the budget.

The logic of the Ministry of Finance is clear - in order to fill the budget and maintain reserves, the ruble must become cheaper, and then all the numbers will come together. But not all experts are confident that the balance on paper will mean growth in the Russian economy and the well-being of citizens. The fall in the ruble exchange rate will inevitably lead to higher prices for imports, and, therefore, to an increase in prices for imported goods, which Russians will feel.

Moreover, Professor of the Department of Finance, Monetary Circulation and Credit, RANEPA Yuri Yudenkov believes that instead of accumulating reserves in the current situation, it would be more effective to channel additional oil and gas revenues into the economy to give it a boost to growth.

— A week ago, the Central Bank and the Ministry of Finance decided that the ruble exchange rate was too strong and needed to be corrected a little. They correct it based on import and export flows. Importers want the ruble to be stronger, exporters want the opposite. The combination of these interests ensures a rational value of the ruble exchange rate.

In addition, the Central Bank decided to increase the volume of gold and foreign exchange reserves from the current 387 billion to 500 billion dollars. The fact that the Central Bank will start buying dollars on the stock exchange will also contribute to the depreciation of the ruble.

“SP”: — Is there a danger that a “domino effect” will arise if the financial authorities begin to lower the ruble exchange rate, and at the same time, oil prices also go down?

- There is such a danger. But until now the Central Bank has practically not participated in currency purchases, last time going public in 2015. So for now the Central Bank is in control of the situation. But the fact that the Ministry of Finance in its calculations shows that at the current exchange rate of the ruble we are not meeting the budget is very regrettable. If we fill the budget by devaluing the national currency, there is nothing good about it.

“SP”: — How should it be filled?

— Through a reasonable tax policy and stimulating the development of our own production, but not due to devaluation. The position of the Ministry of Finance, in my opinion, is weak. It is one thing to provide the country with gold and foreign exchange reserves in the face of jumping oil prices and a shaky ruble. After all, the greater the reserves, the greater the stability and the less likely it is that the national currency will “jump.” This position of the Central Bank is understandable, and one can understand why it is starting to buy foreign currency.

But the fact that the Ministry of Finance openly talks about the need for devaluation to fulfill the budget is very bad. This indicates the inability of the department's leadership to fulfill the tasks assigned to it. Due to the devaluation of the ruble, any person will fulfill the budget task; you don’t need a lot of intelligence for this. I am convinced that completely different steps need to be taken to fill the budget.

“SP”: — So, the purchase of currency by the Central Bank itself does not mean a fall in the ruble, these are still only the wishes of the Ministry of Finance?

— It all depends on how the financial authorities will approach the purchase of currency. If you are careful, this may not affect the course too much. But there is such a thing as expectancy theory. If the appropriate situation is created, panic may arise. Roughly speaking, everyone will rush to buy foreign currency, and then the ruble may become much cheaper.

“SP”: — Will there be noticeable consequences from a 10% depreciation of the ruble?

— Of course, the Russians will feel it themselves. Look, most of the goods in our stores, with the exception of food, are not produced here. We purchase goods for foreign currency. Therefore, if the ruble exchange rate falls, these products will become more expensive for the population.

Now even a slight strengthening of the ruble has caused a decrease in prices for certain brands of equipment. And not only for equipment, but also for medicines. And the rise in prices for pharmaceutical products, unlike gadgets, will be felt by everyone.

“SP”: — How advisable is the new budget rule? Why was it decided additional income transfer to reserves?

— The position of the Central Bank is that reserves need to be increased for insurance. But I believe that additional money should be put into production and developed. We are currently deteriorating in this direction at a rapid rate. I have already said that we have to purchase almost all groups of goods abroad. But at least pharmacology can be developed to produce our own medicines?

It's sad that our money is put somewhere in a box. After all, money is just cut paper. This is an agreement between people that we accept a certain price for a product and give so many rubles or dollars for it. But this is a convention. For the population of the country, first of all, goods and services are important. It is necessary to make sure that the people do not become poor, but become rich. In our country, the number of people living below the poverty line has increased by three percent over the past three years. But we continue to hoard instead of giving jobs to people. Meanwhile, unemployment is rising. In single-industry towns it’s already a real disaster.

I support the view that additional oil and gas revenues should be put into production. To put it in the language of the poster, all oil surpluses are for the benefit of the people. In my opinion, $387 billion today is quite enough as gold and foreign exchange reserves. According to this indicator, we are in sixth place in the world. And our economy is far from being in sixth or tenth place, and if we talk about purchasing power parity, it’s not even in 20th place. Why create reserves now? We need to develop.

Not to mention the fact that purchasing foreign currency is supporting the economies of other countries. If you buy the euro, you support the European Union, buy the dollar, you support the United States, and so on. If you develop your own production for rubles, you will support our manufacturer and country.

Analyst at the Finam group of companies Bogdan Zvarich believes that the Ministry of Finance’s calculations do not yet mean that the ruble will depreciate by 10%, although it does not exclude such a scenario.

— In my opinion, it was only about an indicative course. The main factor for the possibility of purchasing currency is a stable situation on external platforms and the foreign exchange market. Now conditions have developed that speak in favor of the ruble, giving the Central Bank and the Ministry of Finance the opportunity to enter the market. At the same time, theoretically, through interventions, the Ministry of Finance can contribute to the weakening of the national currency. However, other factors will need to be taken into account here, such as the dynamics of oil prices and the situation with the sanctions regime. Both factors can play “for” the ruble, as a result of which we will never see its weakening.

“SP”: — But still, is the ruble really too overvalued now and needs to be weakened a little?

— If we talk about a fair exchange rate, then it is exactly the one that we see at the moment on the market, since it consists of the total supply and demand caused by the need for ruble or foreign currency funding for various companies. Interventions by the Central Bank will become an additional factor in the demand for currency, which may lead to a change in the fair value of the ruble downward.

Starting in February, the Ministry of Finance and the Central Bank will begin buying foreign currency on the domestic market. The volume of interventions will be determined monthly and depend on the amount of oil and gas excess budget revenues, the Ministry of Finance announced

Photo: Ekaterina Kuzmina / RBC

The Ministry of Finance will begin operations for the purchase and sale of foreign currency on the domestic market from February 2017; they will be carried out “in order to increase the stability and predictability of domestic economic conditions,” as well as reduce the impact of oil prices on the Russian economy and budget, the department said in a statement. The ministry will involve the Central Bank to carry out operations.

As long as the price of Russian Urals oil exceeds the budgeted level of $40 per barrel, the Ministry of Finance will buy foreign currency in the amount of additional oil and gas revenues (estimated income from the excess of the actual oil price over $40), the Ministry of Finance explains. If the oil price drops below $40, the ministry will sell foreign currency.

At the beginning of each month, the Ministry of Finance will publish an estimate of additional (or shortfall) oil and gas revenues and, accordingly, a monthly plan for the purchase (sale) of foreign currency, follows from the department’s message. Daily trading volume will be calculated by dividing the monthly volume by the number of trading days. During the trading day, the currency will also be bought (sold) evenly.

Additional oil and gas revenues for the current month will be calculated as the excess of estimated oil and gas revenues (which will depend on actual Urals quotes and the ruble exchange rate for the previous month) over those budgeted. And the monthly volume of foreign currency purchases will be determined as additional oil and gas revenues estimated for the current month plus the deviation of actually received oil and gas revenues for the previous month from estimates for the same month. In other words, “errors” in estimating oil and gas revenues for the previous month will be automatically corrected in the next month.

“This approach is essentially the implementation of a mechanism to minimize the impact of oil price volatility on domestic economic conditions before the introduction of fiscal rules,” the Ministry of Finance notes. Without existing budget rules, additional oil and gas revenues in 2017 cannot be used to finance federal budget expenditures.

The ruble is too “unpredictable”

Previously, the government did not spend excess revenues from strengthening oil to finance additional budget expenditures until the adoption of a new budget rule. The budget rule, which provides for the transfer of excess oil revenues to reserves, should begin to work in 2020. It will set the base oil price at $40 per barrel and will limit budget spending so that it will have to be equal to base revenue minus interest costs for debt servicing, Siluanov explained in September. In 2018-2019, according to the minister, there should be “a finalization, an entry into the structure of permanent budget rules.” According to the Ministry of Finance, additional budget revenues at an average oil price of $50 per barrel will amount to about 1 trillion rubles, which is equivalent to approximately $17 billion at the current exchange rate.

The budget for 2017-2019 includes an oil price of $40. However, in lately it strengthened following world prices: during the monitoring period from mid-December 2016 to mid-January 2017, the average price of Urals was $52.5.

On January 19, First Deputy Prime Minister Igor Shuvalov said that the Central Bank may begin to purchase foreign currency on the market due to strengthening oil prices. “At today’s oil prices and taking into account the decision made not to spend additional oil and gas revenues, we can confidently speak about the possibility of purchasing currency on the market,” Shuvalov said. As the official noted, the volatility of the ruble has a bad effect on Russian exporters, which is why the government considers it important to “ensure greater predictability of the ruble, its less exposure to unpredictable changes in oil prices.” Ruble per last year strengthened by 20% and continued to strengthen in 2017.

On Thursday, the press service of the Ministry of Finance said that the ministry plans to increase the purchase of foreign currency on the domestic market by several billion rubles per day compared to December 2017. The growing presence of the Ministry of Finance in the foreign exchange market is explained by the transition to a permanent budget rule, which means that up to 70% of oil and gas revenues are allocated to reserves versus 30–40% in 2017.

The Ministry of Finance of the Russian Federation will buy a record 15.1 billion rubles in foreign currency on the domestic market from January 15 to February 6. per day, will allocate a total of 257.1 billion rubles for these purposes. The planned volume of currency purchases in January 2018 should exceed the record of December 2017 (12.7 billion rubles for daily transactions and 203.9 billion rubles for the total volume of purchases for the month).

The Ministry of Finance began purchasing foreign currency on the market in February 2017 as part of the “temporary budget rule” - to minimize the dependence of the ruble exchange rate on the volatility of oil prices. For these purposes, the ministry spends funds from additional oil and gas budget revenues. The impact of these operations on the Russian currency exchange rate, according to the Ministry of Finance and the Central Bank, should be neutral. The Ministry of Finance bought dollars on the market for reserves at the expense of additional oil revenues based on the cut-off price of $40 per barrel - a total of 830 billion rubles were purchased in foreign currency.

In 2018, the design of the budget rule (it was adopted in the summer of 2017) will become stricter. Let us remind you that the 2018 budget was drawn up based on a conservative forecast for the oil price of $43.8 per barrel (the actual price of Urals in 2017 was $53.03). The Ministry of Economy expects that due to the extension of the OPEC+ deal, the estimate for 2018 will be raised to above $50 per barrel; the Central Bank already increased it to $55 in mid-December. Interventions will depend on the actual, rather than forecast, exchange rate of the ruble and can grow to 2–2.8 trillion rubles. “We will buy more foreign currency than under the old formula - up to 70% of oil and gas revenues, now - about 30-40%,” Anton Siluanov explained earlier.

In 2019, the rule will become even stricter - expenses will not have to exceed the sum of non-oil and gas and oil and gas revenues (calculated from the base oil price), expenses for servicing the public debt and budget balances - while in the transition year of 2018, 1% of GDP is added to this amount.

Why the likelihood of “minor” budget concessions from the Ministry of Finance will increase in 2018

At the end of 2017, the budget deficit is expected to be 1.6% of GDP, or about 1.5 trillion rubles; expenses of some departments transferred from 2017 may be added to the 2018 budget deficit. The Ministry of Finance actually succeeded in its policy of fiscal consolidation and, due to unplanned revenues, of which 40% are not formally related to oil exports, saved in 2017 about 0.5% of GDP of funds that would have been spent from reserve funds.

As stated in the message on the website of the Russian Ministry of Finance, the expected volume of additional oil and gas revenues of the federal budget, associated with the excess of the actual oil price above the base level, is projected in January 2018 in the amount of 257.1 billion rubles.

And it is this amount that the government intends to spend on the domestic foreign exchange market in the period from January 15 to February 6, 2018. The daily volume of foreign currency purchases will be the equivalent of 15.1 billion rubles.

The Ministry of Finance will involve the Bank of Russia in carrying out operations. Every working day during the specified period, the Central Bank will enter into transactions for the purchase of foreign currency at the Moscow Exchange, evenly throughout the trading day. The purchased foreign currency will be credited to the accounts of the Federal Treasury with the Central Bank of the Russian Federation.

This is the second time in recent years that the Russian Ministry of Finance has announced a decision to increase production in this way. At the end of last year, this decision did not lead to a noticeable weakening, although the volume of purchases was sensitive. This time it is planned to increase the volume of currency purchases by 25% compared to December, which will correspond to an increase of 2.1%.

“Watching such actions of the Ministry of Finance, you wonder: why has it become so active in recent months? And what caused this decision?” says Global FX investment analyst Sergei Kostenko. In his opinion, these actions are due to the desire to increase financial fat in the wake of high prices for crude oil, which bring significant ruble income, and to prepare for possible challenges of both a political (in the run-up to the presidential elections) and economic nature. Previously, against the backdrop of falling oil prices, the state budget lost a significant amount of weight, which even led to talk among experts about the likelihood of a money issue to eliminate financial gaps in the state budget.

Another reason, Sergei Kostenko believes, may be the expectation of new American sanctions, which will come into force in February, and the possibility of attacks on the ruble by non-residents during the pre-election period. In this case, it will be possible to stop such probable actions by currency interventions.

Assessing the pros and cons for our economy from the Ministry of Finance’s activity in the domestic foreign exchange market, the analyst believes that the only benefit will be the stabilization of the domestic foreign exchange market, although this in itself is not small.

So the Ministry of Finance’s decision to buy foreign currency is unlikely to have a strong negative impact on the ruble exchange rate, since it has high oil prices on its side, as well as high demand for federal loan bonds (OFZ), which attract foreign investors for speculative purposes. Therefore, according to the forecast of Sergei Kostenko, paired with the dollar until the end of this month, the ruble will remain in the range of 56.00-60.00, paired with the euro 67.00-71.00.

Ministry of Finance before vacation

The Ministry of Finance’s calculation is quite pragmatic, says Alor Broker analyst Alexey Antonov. Firstly, the state needs currency to pay for the import of goods and services; these are expenses that cannot be avoided. So why not buy dollars now, while they are relatively cheap, so that later, when the rate is higher, you can spend them? The logic is similar to the purchase of currency by individuals before a vacation. Secondly, the Ministry of Finance has long been counting on: in 2017–2020, the ministry expects the average nominal exchange rate to be 64.8 rubles, in the next 5 years - 71.5 rubles, in 2026–2030 - 77.1 rubles.

And why not try to speculate on this growth in the exchange rate, especially since the Ministry of Finance is a market maker: it has the largest volumes on the market, its purchase of dollars worth 257 billion rubles will inevitably move the quotes up, that is, it will win in any case, the analyst is sure . He will buy it for 57-60 rubles and sell it in six months for 65-62 rubles, relatively speaking. Thirdly, Antonov continues, the Ministry of Finance needs to support Russian exports, which suffer from excessive strengthening of the domestic currency, and this task can also be solved by simply buying dollars and depreciating the ruble.

The Central Bank will help by lowering the key rate and squeezing carry traders out of the ruble-dollar pair, whose actions should also not be discounted. As soon as the spread between the key rate of the Central Bank and the Fed reserve rate becomes minimal, carry traders will begin to massively sell ruble assets and the ruble and withdraw funds into foreign currency, and then abroad. Against this background, the depreciation of the ruble looks almost inevitable, if not for oil.

The relatively high price of oil causes the ruble to strengthen, and when Brent is about to be given perhaps $70 per barrel, it will not be easy to fight this strengthening, Antonov believes. In general, these swings with the fall and rise of the national currency exchange rate, of course, look somewhat depressing from the point of view of the population, who simply need a stable national currency, no matter what methods.

Why, the expert asks, should citizens run to exchange offices and try to guess the future exchange rate of the dollar, especially in conditions when the overwhelming majority of citizens have no savings, they receive their salaries in rubles, and immediately spend on current consumption? And when, since there are no savings, then there are no tools for hedging currency risks, and the depreciation of the ruble leads to the impossibility of traveling even to neighboring countries for a short vacation?

So far there has been no rush around exchangers. Ordinary Russians are in no hurry to storm banks and transfer savings from ruble boxes to foreign currency ones. “MK” asked the tellers at several credit institutions in Moscow and the Moscow region (state and commercial): did they have more clients getting rid of Russian banknotes? Bank employees responded that they had not noticed anything unusual: on February 1, in the first half of the day, only a few people came to change currency - no more than on other days, and with small amounts. As for the rates posted on the boards of these banks, they also did not capture the imagination. The purchase and sale of the dollar fell within the range of 60.7/62.8 rubles, the euro - 64.5/67 rubles.

The Central Bank, for its part, also did not cause any confusion: the official exchange rate of the “American” the next day increased by 28 kopecks, the “European” - by 75 kopecks, which, in principle, does not go beyond the usual volatility.

The atmosphere on the foreign exchange markets was also quite calm. According to the deputy head of the analytical department of Alpari, Natalya Milchakova, judging by the trading dynamics, the Central Bank did not enter the stock exchange on the first day of February.

But experts believe that we should not rush to conclusions. To the Ministry of Finance, which is responsible for budget execution, the ruble at the rate of 60 per dollar seems too strong. The treasury deficit this year is expected to be 2.8 trillion rubles. Since more than half budget revenues is foreign exchange earnings, then, based on the logic of officials, the strengthening of the Russian currency by just one ruble “washes out” billions from the treasury.

Therefore, the Central Bank will definitely buy currency, although it will undoubtedly try to do this as carefully as possible. “The Central Bank is waiting for a favorable exchange rate. Most likely, it will enter the market when the dollar drops below 60 rubles. Currency purchase volumes will range from $1–3 billion per month. In this regard, it is worth preparing for more impressive jumps in the dollar and euro exchange rates than now. Purchases of foreign currency in such volumes will allow the dollar to rise to 70 rubles, which is even higher than the level that the Ministry of Finance is striving for,” Milchakova notes.

There is another factor influencing the ruble - private investors. The intervention of the Central Bank will be a signal for other market participants. The presence of the Bank of Russia on the stock exchange will push the dollar to growth. Banks and other exchange players will closely monitor exchange rate differences and will begin to buy dollars at any opportunity, which will also negatively affect the ruble.

However, there are other options for the development of events. For example, if Donald Trump fulfills his promises and lifts or at least weakens sanctions against our country. This will be a positive impetus for the ruble, the exchange rate of which will strengthen. A number of American financial institutions predict that with this development of events, the value of the Russian national currency will increase by the same “sacred” 10%. In 2016, the Ministry of Finance made a bet on the dollar in order to save money in the Reserve Fund in this currency (supposedly more reliable), and lost - its volumes fell more than three times: from $50 to $16 billion. If history repeats itself, then the efforts of the Ministry of Finance efforts to reduce the budget deficit risk being futile.

What should ordinary Russians do in the current situation? There is no reason to panic either in the ruble or in the dollar. It makes sense to buy dollars for a long term - six months to a year. But doing this with minor fluctuations and every day is too risky. No one knows exactly when the Central Bank will go public. It is possible that when the regulator, in the process of intervention, considers the dollar exchange rate too high and decides that this threatens the achievement of the inflation target of 4%, it may begin to get rid of the currency. Then private investors who exchanged their hard-earned rubles for American money will inevitably lose.

“Now our authorities are difficult to understand. They want the ruble to be cheap and inflation to be low, but it is almost impossible to combine these,” Milchakova concludes.