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The ruble’s depreciation in the days following the start of the Ukraine war served as a powerful signal of Russia’s newfound financial isolation.
The ruble fell to a record low of 121.5 rubles per dollar as a result of international sanctions on Vladimir Putin’s dictatorship, bringing back memories of the 1998 Russian financial crisis.
The ruble had been reduced to “rubble,” according to US President Joe Biden.
It hasn’t happened yet, though. The currency has risen all the way to 79.7 in Moscow, where it was before Putin’s invasion of Ukraine.
What’s become clear is that, despite an incredibly broad package of sanctions against the Russian government and its oligarchs, as well as an exodus of foreign businesses, the actions are largely ineffective if foreigners continue to consume Russian oil and natural gas, bolstering the ruble and piling money into Putin’s coffers.
The fast rebound of the ruble gives Putin a big win back in Russia, where many people are fixated on the currency’s ups and downs, even while his military is mired down in Ukraine and fury grows throughout the world over the horrors it has done.
“Saying that sanctions have no effect is a good PR weapon for politicians. It will also aid in the reduction of inflationary pressures “Guillaume Tresca, a senior emerging-market strategist at Generali Insurance Asset Management, echoed these sentiments.
The Russian rouble returns to pre-invasion levels.
The ruble-dollar exchange rate has undoubtedly been the most important economic indicator in Russia’s post-Soviet history. As hyperinflation exploded in the early 1990s, the rate was broadcast by the exchange kiosks that popped up in every town and city, signalling the currency’s demise. Following Russia’s default in 1998, the currency fell once more.
The authorities removed three zeros once the commotion had passed. Then, during the 2008 financial crisis, the government spent billions of dollars to prevent the currency’s depreciation, partly to avoid frightening the public and triggering a bank run. When sanctions over the annexation of Crimea pushed Governor Elvira Nabiullina to move the currency to a free float in 2014, she decided to take a chance.
Russia has implemented capital controls in response to this year’s sanctions, which appear to be helping the currency. Nonresident investors’ assets have been frozen, and Russian corporations have been instructed to convert 80 percent of their foreign currency holdings into rubles.
As a result, several analysts are questioning the importance of the ruble’s return to pre-invasion values, which is occurring amid the lowest trading activity in a decade. “With all the measures imposed by the authorities, it is hardly a free-floating money,” Tresca explained. When appearing before Congress on Wednesday, US Treasury Secretary Janet Yellen stated essentially the same thing, cautioning against inferring deeper sanctions messages from the ruble’s recovery.
Even so, it’s difficult to overlook the lifeline that other countries are throwing Putin by buying his country’s oil and gas. This offers Russia a current-account surplus (economics lingo for exporting more than you import, which tends to raise a country’s currency) and undermines the sanctions campaign against it.
“A current-account surplus should really be another source of stability for the ruble,” Wells Fargo Securities LLC strategist Brendan McKenna said. “The current account should remain in surplus if energy prices remain high and big importers of Russian energy and commodities continue to purchase.” According to him, the ruble might touch 78 per dollar, owing in part to Putin’s counter-sanctions.
Russia is expected to gain more money from energy in the coming year.
At least for now, Russia has been able to stabilise local markets and even avoid a messy international default. This means that if the anti-Putin coalition wants to hit the ruble again, they’ll have to alter tactics. The US Treasury has prohibited dollar debt payments from Russian bank accounts in the United States, in an attempt to force Russia to deplete its domestic dollar reserves or default.
“It is not surprising that some domestic markets stabilise as Russia’s economy and financial sector adjust to a new equilibrium of capital controls, regulated pricing, and economic autarky,” economists Elina Ribakova and Benjamin Hilgenstock of the Institute of International Finance said. “Sanctions have evolved into a changing target, and they will need to be adjusted over time to remain successful.”
They predicted that financial sanctions will be tightened even further, with more Russian institutions potentially being cut off from SWIFT, the global banking messaging system.
After failing to seize Kyiv, Putin was obliged to adjust his war strategy in Ukraine, relocating forces away from the city. Tellimer Ltd., a research firm, is caution investors not to put their faith in market rallies in the midst of potential peace talks in Ukraine.
“Don’t buy the peace rallies,” warned Paul Domjan, a Tellimer senior contributing analyst. “Market gains in response to news of peace talks should be treated with caution by investors. As the world heroically attempts to finish this battle, there will be lots of false dawns.”
