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Stronger sanctions: oil will not save Russia

Санкции сильнее: нефть не спасет Россию

Sanctions imposed against Russia in April, has already led to the depreciation of the ruble against the dollar almost 11%. And this despite the fact that oil prices during this time increased by 10%. If the price of a barrel will soon subside, the dollar rate may go above 70 rubles for the American currency, and inflation will once again be in double digits, experts say.

The sanctions imposed against Russia in April, inflation broke up and weakened the Russian currency, despite rising oil prices. In the future this will lead to an acceleration of inflation and the refusal of the Central Bank from the neutral monetary policy, noted in the new issue of “monitoring of the economic situation in the Russian Federation” of the Ranepa.

In early April, the U.S. imposed new sanctions against Russia. The list includes a number of major Russian businessmen, and they control the company.

This decision led to serious volatility in the Russian market.

In April, the ruble depreciated against the dollar by 10.8%, falling to 63.5 ruble per U.S. dollar in connection with the introduction in early April severe sanctions from the United States,

experts say the Ranepa. Thus the weakening of the ruble occurred against the background of high oil prices. In April, oil prices rose by 10.2% to $74.6 per barrel.

“The increase in geopolitical tension can become a factor in the further decline of the ruble, which may be exacerbated by the fall in energy prices”, — experts warn.

April the weakening of the ruble has already led to an acceleration of inflation and the refusal of the Central Bank from lowering the key rate at the last meeting of the Board of Directors, which last month left the key rate 7.25% unchanged.

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“The suspension of gradual easing of monetary policy is associated with increasing uncertainty about the further development of the geopolitical and economic situation, and increased risk of inflation due to the devaluation of the ruble in April 2018. In April inflation was 0.4% (0.3% in April 2017), and in annual terms it has reached 2.4 percent,” write in Ranepa.

In General, the long period of monetary easing coming to an end. According to the Central Bank, a neutral key rate is 6-7%, but in the conditions of considerable risks of new external shocks his achievement may well last for 1.5–2 years, conclude the experts of the Ranepa.

The atypical behavior of the NASDAQ in 2014, when the price of oil was still high, says investment analyst Global FX Vladimir rojankovsky.

“This was due to the fact that the Russian economy began to show signs of overheating: oil budget revenues could lead to a comparable increase of GDP, and the ruble began to show the first signs of “vertigo”, although the price of oil continued growth,” — says the expert.

The ruble is really now behaves atypical in relation to the price of oil, said the expert BCS Sergey gayvoronskiy. Thus, according to him, the same situation was observed not only in 2014, but in November 2017.

“Then all fell simultaneously emerging market currencies, reacting to the first time a serious outflow of capital from risky assets. Investors feared a tougher policy of the fed after the departure Yellen. The correlation of oil and the ruble for a while then disappeared. That is, the oil for some time ceased, in the eyes of investors, to be an important factor to determine the exchange rate of the ruble,” he explains.

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At the same time, according to a leading analyst Amarkets Artem Deev, only thanks to high oil prices, the devaluation of the ruble is currently controlled process.

“If the price of oil will drop (and now there is a risk of such a scenario), then the weakening of the ruble will become a natural process, as it was in 2014. Speculators will quickly turn up rate above 70 rubles to the dollar, and inflation will reach double-digit levels,” — says Artem Deev.

In this situation it would be not the preservation of soft monetary policy, and the tightening of monetary policy. The Central Bank will have to raise rates, says Deev.

Recently the Deputy Secretary of the Treasury Seagal Mandelker just announced new sanctions against Russia. According to the Agency, which quotes Agency Bloomberg, the us wants to force Russia to incur “significant costs in response to a number of malicious actions”. Thanks to new restrictive measures, members of the Russian elite “will no longer be protected from the effects of the destabilizing activities of their government”, he said.

In turn, the General Director IK “Kharitonov Capital” Maxim Kharitonov said that because inflation in the coming years will be determined by budget expenditures due to new of the may decrees, the level of 4% is likely to be overcome already by the end of this year, and next year is a more realistic figure of 5-6% per annum.

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