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Business / Finance

Contagious currency themes of the day 21.08.2018 at 21:00

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The Russian ruble has a new problem — the economic crisis in Turkey. How dangerous it is for the rate of our national currency?

In the midst of a crisis: Turkey storm

the Ruble opened a new week by falling. On Tuesday, August 21, the Russian currency continued to decline, losing to the dollar 36 cents. Since the beginning of the week the dollar grew in price by 0.6%. Not helped the ruble rising price of oil. Even Friday's positive from Fitch, have retained 17 Aug country rating of Russia at "BBB-" with positive Outlook, not become a driver for the strengthening of the national currency.

the Release of the rating Agency, praised Russia for the stability of economic policy, low inflation and prudent fiscal strategy, it seems, pleased only first Deputy Prime Minister, Minister of Finance Anton Siluanov. Foreigners responded to this new sale of government bonds. As a result, the return on the benchmark government bonds RGBITR already exceeded 8.5%. At the beginning of the year he was traded at the level of 7.3%. "Buyers of ruble denominated public debt is clearly not so much worried about the ban on the purchase of new editions of itself, but the accompanying volatility in the foreign exchange market after the imposition of sanctions," — wrote in his review analyst "Discovery Broker" Timur Nigmatullin.

because of the low demand on 21 August, the Finance Ministry has cancelled auctions OFZ (for the second time this year, last time this happened on April 10 at the background of the collapse of Russian markets for the new batch of us sanctions, and before that the auctions of OFZ was not abolished for nearly three years). In the Finance Ministry explained the decision by increased volatility in the financial markets.

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However, even without sanctions, the situation for the ruble is not very good. This week almost all emerging-market currencies weakened against the dollar. The epicenter of the financial crisis, all of August is still Turkey. After the imposition of duties on steel and aluminum the rate of the Lira fell by 20%. The collapse has been halted only after the Turkish Central Bank raised interest rates REPO, covering banks to speculate on currency. Turkish President Erdogan stated that he would not deal with the devaluation of the national currency by raising the key rate and will not resort to IMF assistance.

the dollar against the Turkish Lira since the beginning of the year

Source: Bloomberg

However, according to financiers, these measures will be insufficient to stop the crisis. "This crisis will continue, because they did nothing to fundamentally change the situation," said CNBC CEO of Principal Global Investors Jim McKagan. Chief economist of Alfa Bank Natalia Orlova also believes that the economic crisis in Turkey is still far from complete. Most investors scary huge debt of Turkish companies — 340 billion dollars, of which 180 billion to be paid in the coming year. But given the private reserves of the Central Bank (30 billion dollars), analysts say, it is unreal. Analysts at J. P. Morgan Asset Management, noted that the country has a large balance of payments deficit and large external debt.

"not surprisingly, the prospects of stabilizing the situation in Turkey looks bleak and economic crisis in the country is just beginning. World markets play a negative effects of the crisis in Turkey, not only in emerging markets but also on Europe — the Euro eased to 1.14 against the dollar, reflecting expectations of potential losses of European banks," Orlova wrote in his review. As the Director of analytical Department of "Loco-invest" Cyril Tremasov has commented on the hesitancy of the actions of the Turkish regulator in his telegrams-channel MMI: "It is absolutely devastating situation for the country's financial system. The scale of the coming collapse is hard to imagine, but obviously nothing like in major developing economies we have not seen before".

what does the ruble

a Direct link between the ruble and Turkish Lira, experts say, does not exist. Despite the extensive trade relations between our two countries (the trade turnover last year amounted to 22 billion dollars), the volume of payments in local currencies is negligible. According to the head of trading strategies Dukascopy Bank SA Daniil Egorov, Turkey holds a significant place in the trade balance of Russia and is one of the consumers of Russian gas and oil. "However, the direct relationship between the Lira and the ruble, in fact, no pronounced negative dynamics of the dollar currency is characteristic of virtually all developing countries," he said. That is, the ruble is falling because of the Lira is not in itself, but in company with other currencies of developing countries.

the dollar against the ruble since the beginning of the year

Source: Bloomberg

on the other hand, if you look at how varied the exchange rate of the dollar against the ruble, the trends are very similar. Although the dollar rose against the ruble is not as strong as the Lira. "The outflow of investors from one market to provoke similar actions on the other. Turkey is "different" now that drops more than others, so investors and talking mainly about her. However, if we compare the dynamics of the currency since the beginning of the year, Russian ruble, Brazilian real and South African Rand are moving in the "same pace", — says the head of asset management Department General Invest Denis Gorev. And if earlier the dynamics of the ruble was determined by the change in oil prices and political risk, but now, according to him, these factors were added the factor of negativity in the rest of emerging markets.

According to Timur Nigmatullin, the structure of the economy and capital markets. The movement in the foreign exchange and stock markets often create global index funds and ETFs, which manage huge amounts of money. And, according to the analyst, the crisis in certain parts of the world, in one country can easily spill over into neighboring countries, triggering a Domino effect.

Therefore under pressure not only Lear, but also other currencies. For example, the Brazilian real has lost to the dollar 15%, Indian rupee — 8%. Chief economist Institute of international Finance (IIF) Robin Brooks stated that capital flows to emerging markets after the fall of the Lira indicate potential contagion. Bloomberg economists also believe that financial contagion could befall other countries. One of them can get Argentina, Colombia, South Africa and Mexico. Version JP Morgan, countries that are more likely to suffer from the crisis in Turkey, Bulgaria, Ukraine, Russia, Romania, UAE.

the losses of the currencies of developing countries against the dollar since the beginning of the year

Source: Bloomberg, Alfa-Bank

On the negative expectations of investors is evidenced by the increase in the cost of risk. Russian five-year CDS is now trading at a record high level of 164.5 points. Even in April, after the us sanctions, and the level of risk in Russia were not so high. "Investors fear that the worsening currency crisis in Turkey will be the forerunner of the financial crisis, which, in turn, will spread to the Eurozone," — notes the analyst of "seven rivers capital" Anastasia Sosnova. Therefore, according to her, the result of accelerated capital flight from the most risky assets, including Russian, risk-free. "The acceleration of capital outflows, in turn, has created additional pressure on the ruble," — says the analyst.

At the same time you cannot overlook the local factors that even greater influence on courses. In particular, the intervention of the Ministry of Finance. Last week, the Central Bank resumed the purchase of currency on the Moscow exchange. On Friday, August 17, the regulator spent 17.5 billion rubles. It was originally planned that daily intervention in August will amount to 16.7 billion rubles. Estimated strategist, Gazprombank Dmitry Dolgin to implement the plan, the Central Bank will have to buy up to 70-90% of the free currency market. Nevertheless, experts believe that the sharp growth of the dollar and the Euro may not happen. "The approaching peak in tax payments attributable to the August 27, may provide some support to the ruble, but the potential strengthening of the Russian currency due to this factor is very moderate," — said the economist of Nordea Bank Tatiana Evdokimova.

will Continue whether Turkey "fell" ruble

last week, just two agencies, Moody's and S&P downgraded the rating of Turkey by planting a new batch of negativity on stock markets. Moody's writes that the Turkish authorities demonstrate "a lack of clear and convincing plan of response to crisis", and this, according to analysts of the Agency, will strengthen inflation and dampen economic growth. The Turkish economy next year will slide into recession, joint S&P. Experts fear that the downgrade may cause increased sales of the Turkish papers the subsequent devaluation of the Lira. It will undermine interest in all obligations and emerging market currencies.

"In the coming two weeks the situation in emerging markets, in our view, will remain a key factor in the dynamics of the ruble. Dynamics of the Turkish Lira, which is the ruble in the last time very sensitive, still carries quite a lot of risks," — says Tatiana Evdokimova.

"While Turkey managed to stabilize the situation in the financial market, but the Turkish Lira is generally aimed at a further reduction. Although perhaps the rate of decline in its exchange rate will become more fluid," — says Anastasia Sosnova. Now, according to her, the situation on the financial markets normalize, and the ruble is almost not responding to the "Turkish factor".

is There a risk that the currency crisis in Turkey will affect Russia? This scenario is quite likely. According to Pine, have a negative impact on the ruble can only panic in the global financial markets. In "Opening Broker" predict the dollar to 70 roubles by the end of the year. But if Turkey is still going to happen full-blown crisis, plus the slow growth of China's GDP, the fall in oil prices and the us Senate will adopt all of the proposed sanctions against Russia — then the domestic currency will not save even the abolition of intervention of the Central Bank.

However, this is not the main scenario. Most analysts still believe that US sanctions will be more soft and Istanbul will be able to bring the situation under control. Last week, the Turkish regulator has announced that it has entered into an agreement with the Central Bank of Qatar on currency swaps. The overall limit is USD 3 billion. "The worst is behind us: more than 6.2 Lira dollar this year, most likely, will not cost" — soothes Egorov from Dukascopy Bank SA. And then he said that the future behavior of the Lira will depend on the behavior of the yuan against the dollar, as well as the position of the White house. But the main thing still depends on financial authorities of Turkey. According to Nigmatullin, if the Turkish Central Bank and will not be able to recover at least partially independent from the political authorities and will continue to shy away from raising the main rate risks in the Turkish economy will continue to grow on the horizon one to two weeks can become a driver of a new weakening of the ruble.