The Ruble Expectedly Turned into a Counteroffensive against the Dollar and Euro on Monday

Trading in the currency section of the Moscow Exchange opened with accelerating declines of both dollar and euro against the ruble. This is not surprising, given the large-scale movements that took place in the second half of last week, after which the market clearly needed a retrenchment and purely technical consolidation.

Let’s admit that the Russian authorities picked a proper time for a new monetary easing taken in response to the collapse of the ruble at the end of February. Most importantly, on Thursday, May 26, the Bank of Russia lowered its key rate to 11% from 14% and extended the term for the sale of foreign currency for exporters to 120 working days, while the subcommittee of the government commission for monitoring foreign investment in Russia on Monday, May 23, slashed the level of mandatory sale of foreign currency earnings by Russian exporters from 80% to 50%. All this coincided with the peak of the tax period and the decline in euro sales proceeds from the exports of Russian natural gas to European countries and elsewhere. However, as more countries are joining Russia’s demand to pay in rubles for gas imports and – potentially – for wheat imports as we look further into 2H 2022, while Russia’s imports collapsed due to foreign sanctions, there are very few reasons for the ruble to return to a downward trend anytime soon.

The sale of energy resources abroad brings Russia about $20 billion a month. In addition, in April, Russia's positive trade balance widened to $37 billion, representing a historical record. It was influenced, among other things, not only by the drop of imports, but also by the ongoing withdrawals of foreign businesses from the Russian Federation.

In addition, starting from June 1, CBR lifted the ban on short sales of securities and the purchase of foreign currency using borrowed funds in Russia. This decision will allow "to ensure the legitimate interests of investors in the financial markets and increase the liquidity of trading." At the same time, the regulator decided to temporarily reduce the level of credit leverage available to investors when making unsecured transactions. The measure, in its turn, will be effective until December 31, 2022. This means that the local market, restricted by foreign sanctions, can become more efficient and trading instruments will obtain a more objective valuation.