December 19, 2014 by AK
Not much to say about Putin’s press conference (mostly boring). One thing though: there is such a thing as too much whataboutism. When a Russian journalist asks the Russian president about Russia’s crippling bureaucracy, and the president says, “It’s far worse in Brussels,” that’s not merely whataboutism, it’s a spit in the face. Now on to some boring stuff about exchange rates and sanctions. Is 60/60 (Brent and RUR/USD) a sustainable equilibrium?
For starters, my response to a Guardian commenter using “hahnbanach” as a nickname. I tried to explain in the simplest possible terms why barring Russia from capital markets played a major role in the ruble’s chute. (By the way, the Hahn-Banach theorem [pdf] is a fundamental result in functional analysis – that much I still remember, more than twenty years since studying it.)
How much of the ruble’s recent slide was caused by the oil price and how much by the sanctions cutting Russia off from global debt markets? From what I’ve read and heard, I understand that with the forex rate at 60-65 rubles per dollar and Brent at about $60 per barrel, Russian companies and the government should be able to repay all of its currency debts maturing in 2015 without a significant decrease in the Central Bank’s forex reserves. This estimate must assume a major plunge in imports, which will increase the trade surplus in 2015.
If Russian companies were able to refinance the loans falling due in 2015, I would guesstimate the rate would stabilize around 50 – still a 30% drop from 35 at the start of the year but not completely outrageous compared, say, with the Norwegian krone’s 20% decline year to date.
Alternatively, some observers estimate the lower boundary for the medium-term forex rate by dividing the M2 money stock (in rubles) by the Central Bank’s forex reserves (in US dollars). This currency-board approach, depending on how M2 is calculated, provides a rate of 70-75 rubles per dollar. Back in 2008-9, however, this theoretic maximum was exceeded by 20% at one point, so perhaps 85-90 rubles per dollar is not impossible – in fact the ruble did briefly touch 80 last Tuesday.