In Russia’s post-Soviet history, the ruble-dollar exchange rate has arguably been the most important economic indicator for Russians. The rate was disseminated by the exchange kiosks that sprung up in every city and town, signaling the currency’s collapse when hyperinflation broke out in the early 1990s. Russia in 1998.
Once this chaos subsided, the government cut three zeros. Then, during the 2008 crisis, authorities burned billions of dollars to slow the fall of the currency, in part to avoid scaring the public and triggering a run on the country’s banks. Governor Elvira Nabiullina decided to take that risk in 2014, when sanctions over the annexation of Crimea and the oil crash prompted her to move the currency to free float.
The ruble’s rapid recovery gives Putin a major win in Russia, where many are focused on the currency’s ups and downs, even as his army bogs down in Ukraine and outrage mounts across the world because of the atrocities she committed.
In response to this year’s sanctions, Russia has implemented capital controls that also appear to support the rouble. This includes freezing assets held by non-resident investors and ordering Russian companies to convert 80% of the foreign currency they hold into roubles.
This leads some observers to doubt the significance of the ruble’s rally to pre-invasion levels – which is also happening amid the lightest trading volume in a decade. “It is not a floating currency given all the measures imposed by the authorities,” Tresca said. US Treasury Secretary Janet Yellen said basically the same thing Wednesday (US time) during her testimony before Congress, warning against drawing deeper messages about sanctions from the ruble’s rebound. .
Yet it’s hard to ignore the lifeline other nations are throwing Putin by buying his country’s oil and gas. It gives Russia a current account surplus – the economics lingo for exporting more than you import, which tends to push the country’s currency higher – and undermines the bid to hit Russia with sanctions.
“A current account surplus should actually be another source of stability for the ruble,” said Brendan McKenna, strategist at Wells Fargo Securities LLC. “If energy prices remain high and major Russian energy and commodity importers continue to buy, the current account should remain in surplus.” He says the ruble could hit 78 to the dollar, partly because of Putin’s countersanctions.
Russia has been able to stabilize local markets and even avoid a disorderly foreign default, at least for now. This means that if the coalition of governments opposing Putin wants to hurt the ruble again, it will probably have to change tack. Just this week, the US Treasury banned the payment of dollar debt from Russian accounts in US banks, an attempt to force Russia to deplete its domestic dollar reserves or default.
“As the Russian economy and financial sector adjust to a new balance of capital controls, controlled prices and economic autarky, it is not surprising that some domestic markets are stabilizing,” Elina Ribakova said. and Benjamin Hilgenstock, economists at the Institute of International Finance. . “Sanctions have become a moving target and will require adjustments over time to remain effective.”
They pointed to the likelihood of further toughening of financial sanctions, even disconnecting other Russian institutions from SWIFT, the communication system used by banks to move money around the world.
Putin was forced to change his war strategy in Ukraine, drawing troops away from kyiv after failing to conquer the capital. Research firm Tellimer warns of confidence in market rallies amid negotiations to potentially end the war in Ukraine.
“Don’t buy peace rallies,” said Paul Domjan, principal analyst at Tellimer. “Investors should be very cautious about market rallies following the announcement of peace talks. There will be plenty of false dawns as the world valiantly seeks to end this war.