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The ruble collapsed, the national debt sell: what will happen after new U.S. sanctions

Рубль рухнул, госдолг продают: что будет после новых санкций США

After Washington imposed a second package of sanctions against Moscow in case Skrobala, the ruble broke a two — month lows 65 to the dollar and 72 to the Euro and investors began to sell Russian debt. Analysts prefer not to escalate the panic, the national currency has weakened largely due to the fall in oil prices, and the first market reaction to the sanctions only added fuel to the fire. However, the worst may be ahead.

What is introduced this time

That the United States introduced a second package of sanctions against Russia because of the case Skrobala, reported Politico, citing White house sources. This was confirmed by a senior representative of the American administration.

According to Washington, Moscow “did not provide guarantees within the framework of American law.” We are talking about the law “On control of chemical and biological weapons” used in connection with the incident in Salisbury. The first package of sanctions came into force last August, since congressmen wanted trump’s next step.

For the second batch in the case Sripala has six options. Including limiting Russia’s ability to borrow funds from U.S. banks, International monetary Fund, the world Bank and the European Bank for reconstruction and development. In addition, the ban on flights in the United States, Russian state-owned airlines that will directly affect the “Aeroflot”.

Why the ruble fell

Which option will choose the trump, is not yet clear. But one news about upcoming limits was enough to ensure that on Friday the Russian currency dived to two — month lows to 65.4 against the dollar and to the Euro 72,42.

Analysts, however, we hasten to caution against panic. External background was formed so that against the ruble played a few factors. The main decliners oil. Thursday, August 1, Brent quotes fell from seven percent to 61 USD per barrel. Is the ruble could not ignore. Black gold, in turn, fell in price because of trump’s plans to impose a ten percent duty on the import of Chinese goods with a total value of $ 300 billion on 1 September.

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China is the world’s largest consumer of energy. And as said Alexander Razuvayev, head of information-analytical center “Alpari”, the market was afraid of reducing demand for oil in connection with the possible escalation of trade war between Washington and Beijing and the slowing Chinese economy.

Negative for the ruble added and the Federal reserve system of the USA. The fed lowered its key rate, but signal willingness to continue monetary easing, the markets have not received. “As a result, investors began to sell risky assets, which contributed to the strengthening of the dollar and the ruble weakening,” says Tatiana Evdokimova, chief economist at Nordea Bank.

Nothing extraordinary

The sale index of net prices of Federal bonds fell by 0.37 per cent is very important. Experts called the behavior of investors with short-term market reaction: it did rather strengthen the sanctions rhetoric. Declared as Washington’s restrictions will not have a substantial macroeconomic impact, I’m sure Timur Nigmatullin, portfolio Manager of the company “Opening Broker”.

“Well, the ban on flights of Aeroflot, will not allow the banks to take — but they really do not take, — says the analyst. — I see no mechanism of influence on the Russian banks, can lead to some extraordinary events”.

The fact that the prohibition on borrowing would not really hurt Russia, and the acknowledged experts in the United States.

“The Kremlin itself is in no hurry to occupy the West,” — said the analyst of the Carnegie endowment’s Andrew Weiss. He stressed that Russia, having a financial cushion of half a trillion dollars, “easily survive” sanctions. Speech on international reserves, by volume (518 billion) returned to the values for the 2013-2014 and covering the entire external debt of the country (482 billion).

Even if some damage will be, it is hardly fatal: the Central Bank and the Finance Ministry are well prepared. Part of the payments potentially subject to sanctions, long-routed through banks, operating in violation of the United States.

The worst is to come?

A much more serious threat — sanctions against the national debt. Members of Congress have long demanded to punish Russia “for meddling in the election” and to prohibit the purchase of Federal bonds, at least new releases. However, the fact that these really stringent measures will follow, observers are skeptical.

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“Americans love to be scared, but don’t like to create problems to your business, which somehow represented in Russia, — says Alexey Korenev, an analyst CC “Finam”. — It is necessary to keep in mind that almost a third of investments in OFZ is the money of non — residents, mostly Americans.”

Although sanctions against the national debt can seriously undermine the exchange rate, Russia has enough mechanisms to stabilize. If the situation escalates, the Finance Ministry will take a break from purchases of foreign currency in the framework of fiscal rules (as it was in August of last year), mitigating the negative effect from the sanctions and supporting the ruble.

What’s next

But such extreme measures are unlikely to need. From the strong fall of the ruble should hold a good fundamental indicators: inflation, balance of payments, the effect of budget rules. “Based on these parameters, the fair rate is 64 to 65 rubles per dollar, but given the sales on the OFZ market in the near future we can see and 66-67,” — says Nigmatullin.

Most analysts agree that the weakening will be moderate. “Sanctions risks increase, and the ruble will not be able to quickly fall back to’ 63 per dollar. The reason is — bad external environment and poor conditions for emerging markets in General. But the announced measures is not a catastrophe that can instantly bring the rate back to 67 rubles per dollar,” — emphasizes Evdokimova from Nordea Bank.

The main thing — oil prices. “If oil prices remain at current levels, and it has all the chances to win back losses because of the tension around Iran, by the end of summer, the ruble is unlikely to go away from the corridor 63,20-64,80,” predicts Koren.

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