EDB analysts assess the macroeconomic implications of keeping the Russian rouble at 55 per dollar
Moscow, 15 July 2022. EDB analysts considered the economic implications of keeping the Russian rouble at 55 per dollar for a long time, using the reverse-engineering approach.
A scenario with the rouble remaining at 55 per dollar until the end of 2022 is possible if imports recover for a considerable period and export revenues remain high. However, the oil embargo is expected to come into force and Russian energy supplies to decline in 2023. Imports are projected to recover to baseline scenario figures, but this process will take longer.
As a result, if the rouble remains at 55 per dollar in the second half of 2022, it is anticipated to gradually weaken in 2023, to a year average of 68 (74 at the end of 2023). An over-valued rouble will contribute to gradual increases in imports and affect exports. This will be forcing the rouble to depreciate in 2023. The foreign trade balance is expected to remain in surplus and therefore the rouble will be under limited pressure.
That said, GDP growth in 2022 and 2023 is projected to be one and two percentage points lower, respectively, compared to the baseline scenario. The overvaluation of the rouble (≈40% against the dollar in the second half of 2022) will affect exporters and import substitution. The time-lagged influence of the exchange rate on output is expected to produce a significant negative effect in the first half of 2023. GDP growth is then anticipated to begin to recover as the rouble weakens and the effects of monetary policy easing emerge.
Inflation at the end of 2022 could then remain below 13% and fall to 2–3% in 2023. An over-appreciated rouble could also stimulate slower price growth. Reduced domestic demand will be an additional disinflationary factor. Deflation cannot be ruled out in certain months of the second half of 2022. Long-term deflation looks unlikely due to logistical problems and depleting stocks.
Under the above conditions, the Bank of Russia could lower its key rate to 6.5–7% by the end of 2022 and to 4.5–5% in 2023.
Additional Information:
The Eurasian Development Bank (EDB) is an international financial institution investing in Eurasia. For more than 15 years, the Bank has worked to strengthen and expand economic ties and foster comprehensive development in its member countries. The EDB's charter capital totals US $7 billion. Its portfolio mainly consists of projects with an integration effect in transport infrastructure, digital systems, green energy, agriculture, manufacturing, and mechanical engineering. The Bank’s operations are guided by the UN Sustainable Development Goals and ESG principles.
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