USD/RUB Rises As Moscow Plans to Wind Down Support Programs in 2021

The Russian ruble is weakening against its US counterpart in the middle of the holiday-shortened trading week. After multiple session gains this month, the ruble is trying to end the year on a high note after becoming one of the worst-performing currencies in global foreign exchange markets. Geopolitical tensions and disappointing economic data could serve as additional barriers for the ruble in 2021.

On Tuesday, the Russian government announced that it would begin to taper its state support measures in the national economy next year. Officials alluded to ballooning debt levels and the collapse in crude oil prices as reasons for Moscow scaling down its stimulus and relief efforts.
Finance Minister Anton Siluanov revealed that the government has run out of options to enhance public finances. It has increased domestic borrowing, relaxed certain budget rules, and raised some taxes to support greater public spending. Policymakers had aimed not to exceed the debt-to-GDP ratio of 20%, but it surpassed this threshold in the third quarter.
Russia has plans for 2021: borrow from capital markets, return to budget rules, refrain from raising taxes, and allocate funds from the state development banks to state-run enterprises.
The finance minister told lawmakers:

If we continued the same policy as this year, we would pull out the money from the economy. We can’t withdraw all the liquidity from the market and finance spending.

If so, then we can’t keep our spending high all the time. We carry out responsible policy unlike other countries that flood and will flood their economies with money.

On the data front, the nation’s manufacturing sector remained in contraction territory for the fourth consecutive month, but it did show some improvement in December. The IHS Markit manufacturing purchasing managers’ index (PMI) clocked in at 49.7, from an opening of 46.3 in November. Russia experienced the smallest decline in output, new orders, export orders, and employment. Business sentiment accelerated to a four-month high.
On Monday, business confidence slipped to -7.3 in December, while corporate profits climbed 20% in October.
The ruble did find relief in higher crude oil prices. March Brent crude futures rose $0.10, or 0.2% to $51.33 per barrel on London’s ICE Futures exchange. Brent is on track to settle the month 7% higher.
But Russia is still poised to suffer the ramifications of US sanctions, which is why the country is pushing ahead with its controversial Nord Stream 2 pipeline that is designed to pump natural gas into Germany. Moscow wants to advance the project before US sanctions are tightened. The US believes that Nord Stream 2 would make Germany and the European Union too reliant on Russian energy.
Russia has captured international business headlines for introducing export taxes on wheat and soybeans to clamp down on higher domestic food prices.
The USD/RUB currency pair advanced 1.15% to 74.7915, from an opening of 73.6750, at 14:03 GMT on Wednesday. The EUR/RUB climbed 1.5% to 91.9200, from an opening of 90.4300.
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Original from: www.earnforex.com