On March 19th, the ruble lost more value, down to 81 for $1 and 89 for €1.
After the decline at the beginning of the day, the American currency jumped to 81.97 rubles, the European – to 89.6 rubles, these are the lowest values against both currencies from respectively January and February 2016.
The ruble recovered approximately 2% of its value since opening hours on the Moscow exchange.
According to Bloomberg, the ruble came in second in terms of volatility among world currencies against the dollar, with only the Mexican peso being more volatile.
An economist and leading expert at the Institute for Contemporary Development Nikita Maslennikov spoke about Bloomberg’s data, regarding the ruble coming in second in terms of the volatility of world currencies against the US dollar.
The main reason, according to the expert, is the rapid decline in oil prices. The cost of the North Sea mixture of Brent, as Maslennikov recalled, fell below $27 per barrel. This is the border beyond which the Russian Central Bank’s contingency scenario begins.
“At the same time, the standard correlation that has developed over the past months looked so that when the oil price fell by ten percent, the ruble went down by three percent. Actually, a very similar picture has developed now,” the economist said.
The Central Bank has the means and tools to solve the problem, the expert recalled. The regulator can increase sales of currencies in the open market. Also, a standard solution in this situation is to increase the key interest rates.
And, indeed, the Russian Ministry of Finance transferred the purchased currency to the National Welfare Fund and began selling it to finance the transaction of acquiring a controlling stake in Sberbank from the Central Bank.
“On March 16th, the Federal Treasury, by decision of the Ministry of Finance of the Russian Federation, transferred funds to the National Welfare Fund (NWF) of additional oil and gas revenues received at the end of 2019. As a result of the transfer, the volume of NWF funds reached 12.2 trillion rubles,” the agency said.
The volume of the NWF as of March 1, 2020 amounted to almost 8.25 trillion rubles, which was equivalent to 123 billion dollars.
According to the budget rule, the Ministry of Finance buys currency for additional revenues that come to the budget at a high oil price.
These funds are sent to the accounts of the Central Bank, from where later they are transferred to the NWF. In 2019, 2,977 trillion rubles were allocated for these purposes, for which 20.7 billion dollars, 18.4 billion euros and 3.605 billion pounds were purchased.
The purchase of Sberbank was ordered by Russian President Vladimir Putin on March 16th, at market price, without any offer to minority shareholders.
The purpose of the transaction is to resolve conflicts of interest.
On the side of oil prices there appears to be a slight recovery for May futures.
Correctional growth in the cost of Brent crude oil accelerated sharply on the morning of March 19th and exceeded 5.5%, according to trading data.
As of 09:13 Moscow time, the price of May futures for the North Sea Brent crude oil jumps by 5.63%, to $ 26.27 per barrel.
Minutes earlier, the price of Brent reached $27.11 per barrel. The price of May futures for WTI crude oil rises at the same time by 12.48%, to 23.43 dollars per barrel.
April’s futures are still in a dire situation, however. Oil demand for the March-April period could come down by around 10 million barrels per day.
Growing concerns over the Covid-19 outbreak and surplus production from Saudi Arabia, the UAE and Russia have roiled global crude oil markets
At closing on March 18th, the West Texas Intermediate (WTI) traded at $23.41 per barrel, while the international benchmark Brent was trading at a 16-year low of $26.02 per barrel, far below the highs of $147 per barrel of July 2008.
Experts are of the opinion that global oil demand for the March-April period could come down by around 10 million barrels per day (mbpd). This is significant as the daily global demand was around 101 mbpd.
“The Covid-19 pandemic has made the already subdued demand outlook grimmer. The spread has led to demand disruption in major crude oil-consuming nations,” the Crisil report said. “Some countries/regions with increasing Covid-19 cases such as the US, Europe, China, Japan, South Korea, and now even India, account for ~71% of the global economy. The spread of the virus would deal a severe blow to their industries and supply chains and impact oil demand from these geographies.”
Separately, The export of Russian oil to China fell in January by almost 30% compared with January 2019, according to the first data of the Federal Customs Service (FCS) on the import of goods into China after the start of the spread of coronavirus there. The decrease in supplies to the main importer of Russian oil is associated exclusively with the epidemic factor COVID-19, analysts are unanimous. And Russia’s non-oil exports to China have grown, mainly due to an increase in the supply of vegetable oil, copper, fish and seafood.
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