RUB’s Retreat: Predictions of a Downward Trend in 2024

The trajectory of the Russian rouble, which has recently enjoyed a period of strength, appears to be cresting and is anticipated to embark on a gradual decline, crossing the 100 mark against the US dollar in 2024. This shift is expected to maintain higher interest rates in the double digits for an extended period, according to a recent Reuters survey.

Temporary Triumph of the Rouble

The rouble’s robustness in the market, invigorated by President Vladimir Putin’s directive mandating certain exporters to convert their foreign currency revenues, has been pronounced. Additionally, an aggressive rate hike by the central bank to 15% in late October further propelled the RUB to a three-month apex of 91.6225.

Economic Stability vs. Currency Decline

With the 2024 presidential election on the horizon, where Putin is predicted to seek continuation of his leadership, the Russian authorities might strive to showcase an image of economic stability. However, economic experts now predict a scenario where the interest rates are set to remain elevated, inflation higher, and the rouble weaker compared to earlier projections.

Analysts’ Altered Expectations

The consensus among the dozen analysts and economists surveyed earlier in November placed the RUB at 103 against the dollar by next year, an uptick from the previous estimate of 95 and the current rate hovering around 93. The adjustment in forecasts also extends to interest rates, predicted to conclude the year at 15% and potentially only reducing to 12% in the forthcoming year, marking an increase from the 10% predicted earlier. Moreover, inflation rates are anticipated to hit 5.2% next year, with a return to the central bank’s target of 4% delayed until 2025.

Inflation and Growth Forecasts

The consensus has shifted from any hope of achieving the lower end of the central bank’s 4-4.5% inflation forecast for the following year. Russia’s inflation projection for 2023 has been progressively adjusted for the worse, with expectations of the year ending with inflation rates surpassing 7%. Sovcombank’s chief analyst Mikhail Vasilyev expects inflation to climb to 7.7% by year-end, outpacing the central bank’s projected range of 7-7.5%, which could prompt an additional rate hike to 16% at the central bank’s meeting in December.

GDP Growth Outlook

The forecast for Russia’s GDP growth has been moderately increased to 2.5% for the current year, a slight rise from the previously estimated 2.3%. However, the projection for 2024 shows a decrease in GDP growth to 1.5%, with a further decline to 1.3% in 2025, reflecting a cautious stance on Russia’s economic growth in the face of an evolving currency landscape.