The US dollar and the euro moved to steady growth on the Moscow Exchange on Thursday afternoon after falling at the opening of trading, updating weekly highs. The ruble is depreciating against the dual-currency basket on closing positions after rising in previous days in anticipation of decisions by the world’s leading central banks regarding their monetary policies (MPs).

The US dollar exchange rate was 57.32 rubles/$1 at 15:00 Moscow time, which is 2.03 rubles higher than the closing level of the previous trading. Earlier in the moment, the dollar exceeded the mark of 58.59 rubles. for the first time since July 15th. The euro cost 58.16 rubles/EUR1, having risen in price by 2.09 rubles. Earlier in the moment, the euro rose to 59.72 rubles. for the first time since July 13th. The cost of the dual-currency basket ($0.55 and EUR0.45) increased by 2.05 rubles to 57.69 rubles.

According to Interfax-CEA experts, the ruble has turned down and is actively depreciating against the dollar and the euro in daytime trading. Market participants close their positions after a significant increase in the previous days in anticipation of the decisions of the world’s central banks regarding the level of interest rates. On Thursday, a meeting of the European Central Bank (ECB) was held, a meeting of the Bank of Russia is scheduled for Friday, and the meeting will be held by the US Federal Reserve System (FRS) next Tuesday and Wednesday.

ECB rate decision
The ECB raised interest rates for the first time in 11 years following its July meeting. The base rate was raised by 50 percentage points to 0.5%, the rate on deposits – to zero, the rate on margin loans was raised to 0.75%.

Consumer prices in the euro area in June increased by 8.6% in annual terms, showed the final data of the Statistical Office of the European Union. The indicator is the maximum since the beginning of the data calculation. Thus, inflation in the region accelerated compared to 8.1% in May.

Inflation exceeds the European Central Bank’s target of 2% by more than four times.

Most experts were of the opinion that following the results of the July meeting, the regulator would decide to raise rates by only 25 bp.

The ECB also unveiled on Thursday a new anti-crisis mechanism designed to limit fragmentation in the region, that is, to reduce discrepancies in the cost of borrowing for different eurozone states.

Waiting for the Friday meeting of the Bank of Russia
On Friday, July 22, a meeting of the Bank of Russia will take place. Most analysts expect the RF Central Bank to cut the key rate by 50 bp. – up to 9.0% per annum. Some economists do not rule out larger steps down – by 75 bp. (up to 8.75%) or even 100 bp. (up to 8.5%).

Immediately before the July meeting of the Board of Directors on the rate, the Bank of Russia did not give any additional signals. At the end of June, Central Bank Chairman Elvira Nabiullina said that the regulator sees opportunities to cut the rate. She noted the volatility of the situation and lags in the impact of monetary policy decisions (MP) on the economy.

Consumer prices in the Russian Federation over the last reporting week showed the maximum decline in the current „deflationary cycle”, which, coupled with the dynamics of inflationary expectations, gives grounds for bolder forecasts of monetary policy easing by the Bank of Russia at this Friday’s meeting.

Rosstat statistics
From July 9 to July 15, 2022, Rosstat recorded deflation in the Russian Federation at the level of 0.17% after deflation of 0.03% a week earlier, inflation of 0.23% in the „tariff week” from June 25 to July 1, zero inflation from June 18 to June 24 and three weeks of deflation before that (of 0.12%, 0.14% and 0.01%). Annual inflation in the Russian Federation as of July 15 slowed to 15.45-15.46% from 15.68% on July 8, 15.90% at the end of June, 17.10% at the end of May, 17.83% at the end of April, 16.69% at the end of March after 9.15% at the end of February, 8.73% at the end of January and 8.39% at the end of December.

Inflationary expectations of the population in July fell to 10.8% after rising to 12.4% in June, follows from the poll „infom” commissioned by the Bank of Russia. Thus, inflation expectations in July approached the level of January 2021, when they were 10.5%. Inflation observed by the population, according to the survey, continued to decline in July and amounted to 22.2% after 23.7% in June and a peak over the past few years of 25.1% in May.

The day before, the Central Bank of the Russian Federation allowed non-resident banks from unfriendly states to conclude transactions in the Russian foreign exchange market for the purchase and sale of one foreign currency in exchange for another, as well as the corresponding delivery currency forwards and swap agreements, the regulator said in a statement.

At the same time, the prices in these agreements should not deviate by more than 2% from the prices for similar instruments in Russian exchange trading and in international markets at the time of conclusion. „The new decision will help Russian banks to better meet the demand of companies and citizens for a specific foreign currency,” the Central Bank said.

Analyst comments
which has been in effect since April of this year. The regulator said in a statement that „such a decision is aimed at supporting foreign economic activity, creating conditions for building new supply chains for import supplies.” It is worth noting that some prerequisites for the weakening of the ruble were outlined yesterday: in the first hour of trading on Wednesday, the ruble rose noticeably across the entire range of the market, forming highs of the day, after which it consolidated against the dollar and declined against the euro throughout the session. In other words, the local reversal took place yesterday, and this morning it only developed. Nevertheless, there are no serious prerequisites for a significant decline in the ruble yet: the peak of the tax period is approaching, and the new budget rule may come into effect no earlier than the fourth quarter.

This is important before the resumption of foreign exchange interventions: the updated design of the budget rule suggests that now they will be carried out not directly through the dollar-ruble currency pair, but indirectly through the currency pairs of friendly countries. In general, this measure will help interrupt the strengthening of the ruble and improve the efficiency of the updated budget rule,” says Pavel Biryukov, an analyst at Gazprombank.

Oil prices
Oil prices fell sharply on Thursday under the pressure of signals of weakening demand for gasoline in the US.

The cost of September futures for Brent oil on the London ICE Futures exchange by 15:02 Moscow time on Thursday was $102.65 per barrel, which is 3.99% lower than the closing price of the previous session. At the same time, at a certain moment of trading, the price of Brent fell by more than 5%, to $101.5 per barrel. The price of futures for WTI oil for September in electronic trading on the New York Mercantile Exchange (NYMEX) by this time amounted to $95.53 per barrel, which is 4.36% lower than the final value of the previous session.

The report of the US Department of Energy, published the day before, indicated an increase in gasoline stocks in the country last week by 3.5 million barrels, to 228.4 million barrels. Meanwhile, the average US gasoline consumption over the past four weeks showed that the rise in fuel prices has limited its consumption to the level of two years ago, Bloomberg notes.

Oil prices have been under pressure since mid-June amid growing risks of a recession in the global economy associated with the tightening of monetary policy by world central banks, writes Trading Economics.

The situation around Nord Stream
Traders are also monitoring the situation around the Nord Stream gas pipeline. Gas pipeline operator Nord Stream AG said on Thursday that Russian gas supplies through it had resumed after technical work had been carried out since July 11.

Oil production in the Russian Federation for the first half of the year increased by 3.4% compared to the same period last year, the production of petroleum products by 4.5%, Energy Minister Nikolai Shulginov said during a meeting with President Vladimir Putin on Thursday.

The minister noted that the energy sectors performed well in the first half of the year compared to the same period last year, despite the fact that work is being carried out in difficult economic conditions.

During the meeting, Putin asked: „And the volumes of oil for export, have they also been increased?” „Yes, they have been increased,” Shulginov answered.

Russia will not supply oil to the world market if a price ceiling is introduced for it, Deputy Prime Minister Alexander Novak said on Channel One on Wednesday. „If these prices, which they are talking about, are lower than the costs for oil production, of course, naturally, Russia will not provide the supply of this oil to world markets, which means that we simply will not work at a loss,” he said.

US Deputy Treasury Secretary Wally Adeyemo announced his intention to achieve the introduction of a maximum purchase price for Russian oil by the end of the year.

Speaking at a security forum in Aspen, USA, he said that if Russia „wants to deliver its energy resources by sea,” then it „will need to sell oil at a lower price” in order to get insurance from Western oil shipping insurance companies, Politico reports.

The deputy minister noted that a ban on insurance of Russian oil transportation in accordance with the sixth package of EU sanctions is introduced in December.

Meanwhile, Britain decided to impose a ban on coal imports from Russia in August and on oil imports at the end of December, Downing Street reported on Thursday. „An amendment is being adopted that prohibits the import of oil and oil products, coal and gold. It is also prohibited to directly or indirectly purchase, supply these goods,” the clarifications published on Thursday read.

Rates on the market for short-term interbank loans fell slightly on Thursday, while rates on the market for medium-term (1-6 months) interbank loans remained unchanged from the previous trading day. The „overnight” MosPrime Rate decreased by 2 basis points (bp) to 9.54% per annum, the MosPrime Rate for seven-day loans fell by 4 bp. – also up to 9.54% per annum. Rates for terms of 1, 3 and 6 months did not change relative to the environment, remaining at the levels of 9.53%, 9.58% and 9.6% per annum, respectively.