FORTRADER: On the Russian market, the ‘Black Tuesday’ of December 16, 2014, is still remembered, when the euro to ruble exchange rate approached 100 rubles per euro, and the US dollar to ruble rate rose to 80 rubles per dollar. Central Bank Governor Elvira Nabiullina stated that sharp price jumps are excluded, but events from a year ago showed that the regulator was unprepared for such developments. Notably, this year on December 16, the Federal Reserve will announce the results of its meeting, which the market expects to include an interest rate hike.
Can ‘Black Tuesday’ for the ruble happen exactly one year later?
Alexander Kupcikovich, analyst at FxPro: In defense of the Central Bank of Russia, it can be said that after these memorable events, the Bank acted much more decisively, no longer playing in free markets and floating ruble. For example, repurchase operations began, the rate was sharply increased, and so on. Over the year, the Central Bank did not remove these measures from its arsenal, but only partially reduced them. There was even a period when the Central Bank replenished its foreign exchange reserves, but as soon as there were signs of pressure on the ruble, these purchases were frozen.
By December, the Bank of Russia again speaks about resuming repurchase operations to allow banks to re-lend dollars at the loans taken a year earlier. This promises to at least partially reduce the demand for currency in the foreign exchange market, if not completely eliminate it.
Causes of the Black Tuesday of 2014
I think it is important to explain that the situation of Black Tuesday last year should be considered as a result of two causes.
- First, the objective decline in the ruble’s exchange rate against the backdrop of falling oil prices. During the year, the national currency remained roughly at the same level relative to oil. In other words, fluctuations around 3600 rubles per barrel, which corresponded to the price of a barrel built into the budget.
- Second, the ruble’s own downward spiral. This occurred against the background of tightening sanctions, which ultimately closed many companies’ ability to obtain financing abroad. At the same time, they had to pay their own debts. It was this spiral that caused panic, peaking with the collapse to 80 rubles per dollar. Here, it was no longer possible to blame oil, since its price in rubles jumped to 4670 at some point.
Poor and Good News for the Ruble Exchange Rate
Applying this situation to today, there are both poor and good news.
The good news is that we can avoid a panic shock in the currency. There are several reasons for this immediately.
The first reason is that over the past year, the geopolitical situation has not improved, forcing companies to adapt to market realities. This means that they have borrowed less abroad, which eventually reduces large payments on external debt.
The second is that the Central Bank knows the consequences and the price that the economy has to pay for such short periods of market instability (decline in business and consumer activity, inflation, restrictive interest rates). Measures to smooth out such situations are well worked out, and it can be confidently assumed that they will be used at the first opportunity. Therefore, there is no sense in expecting sharp deviations of the ruble from oil. And here we come to the bad news.
Control over oil prices remains beyond the reach of both the Central Bank of Russia and any individual player. Moreover, the ruble may depreciate against the dollar even with relatively stable oil prices – due to the strengthening of the USD. It is quite possible to imagine a scenario where oil falls to $38 per barrel during December, and the subsequent logical reaction would be a rise in the dollar/ruble pair to 80.
Last year, after the OPEC meeting, oil lost more than $20 by the end of the year, so it would not be anything unusual for oil to fall from current levels by $8. When oil prices fall, the Central Bank is likely to remain on the sidelines until the threat of a ‘stall’ of the ruble grows, as the Bank did in August. Among all changes in monetary policy, only the halt in rate cuts is possible.
Will There Be a Repeat of ‘Black Tuesday’?
Regarding the initial question about the possibility of repeating Black Tuesday this December, the answer is ‘no’, but this does not mean that the ruble has become strong again or that such a moment will not repeat in the future.
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- Gold Forecast for December: Decline to $1000 per Ounce
FAQ
What is ‘Black Tuesday’ for the ruble?
‘Black Tuesday’ refers to the sharp depreciation of the ruble on December 16, 2014, when the dollar reached 80 rubles.
Can ‘Black Tuesday’ happen again in 2015?
Experts believe it is unlikely, but the ruble could face pressure due to oil prices and the US dollar’s strength.
What factors affect the ruble’s exchange rate?
Oil prices, geopolitical tensions, and the Federal Reserve’s interest rate decisions are key factors influencing the ruble’s value.
