Commerzbank economists predict that the USD/RUB pair will reach 80 by the end of the year and 90 by December 2024, as Russia’s capital account closure for major hard currencies leads to depreciation. The exchange rate only reflects daily trade flows, most of which is energy trade, rather than its forward-looking role based on expectations due to the absence of capital flows. As a result of sanctions, the RUB exchange rate currently only reflects current account flows, which are likely to cause the Ruble to depreciate in the medium-term due to the declining current account surplus.
Russia’s financial markets have been significantly affected by the closure of its capital account for major hard currencies. This has led to a lack of capital flows, which in turn has impacted the exchange rate. The exchange rate no longer reflects expectations and has become solely focused on daily trade flows. With the majority of these trade flows being related to energy trade, the exchange rate’s performance has become tightly linked to this sector.
The closure of Russia’s capital account has also led to the RUB exchange rate focusing solely on current account flows. This is a result of the sanctions that the country has faced, which have restricted its ability to participate in global financial markets. As such, the Ruble is now highly susceptible to fluctuations in the current account surplus. With this surplus expected to decline over the coming years, the Ruble is predicted to experience significant depreciation.
By the end of 2024, Commerzbank economists predict that the USD/RUB fixing will reach around 90.00. This is a substantial change from the current exchange rate and highlights the potential issues that Russia’s economy may face over the coming years. With such a significant shift in the exchange rate, it is likely that other aspects of Russia’s economy will also be affected.
The depreciation of the Ruble will have various consequences for Russia’s economy. One of the most significant impacts will be on imports and exports. As the Ruble weakens, imports into the country will become more expensive, leading to increased inflationary pressures. Moreover, with the country’s economy being heavily reliant on energy exports, a weaker Ruble could lead to lower revenue from exports due to the currency’s decreased purchasing power.
Another potential consequence of the Ruble’s depreciation is the impact on Russia’s foreign debt. With a weaker currency, the cost of servicing foreign debt may become more expensive, adding further strain to the country’s finances. In addition, the potential for further sanctions in the future could exacerbate this situation, making it increasingly difficult for Russia to access international financial markets and service its debt.
Investors in Russia may also face challenges as a result of the Ruble’s depreciation. The weakening currency could lead to higher inflation, which in turn may have negative impacts on investment returns, as the purchasing power of the Ruble declines. Moreover, political and economic instability resulting from ongoing sanctions and geopolitical tensions can lead to increased volatility in the financial markets, making investment in Russia more risky.
It is important to note that the ongoing COVID-19 pandemic may also play a significant role in Russia’s economic outlook. As countries around the world grapple with the health and economic impacts of the virus, there is the potential for further fluctuations in the global energy market, with Russia being highly dependent on this sector. Thus, the extent to which the Ruble will depreciate is uncertain and will likely depend on a variety of factors, including the pandemic’s trajectory and the global economic recovery.
In conclusion, Commerzbank’s predictions for the USD/RUB exchange rate highlight the challenges that Russia’s economy is likely to face in the coming years. The closure of its capital account, combined with ongoing sanctions and geopolitical tensions, has led to significant depreciation prospects for the Ruble. These factors, in addition to the potential fallout from the COVID-19 pandemic, will likely have ongoing implications for Russia’s economy over the next few years, impacting its imports, exports, foreign debt, and investment environment.
