Trade flows recovered and the ruble is now once again affected by the same metrics as before. As the year came to a close, both factors died down: the EU imposed an embargo and a price cap for Russian oil, while imports recovered due to supplies via “friendly countries”. Last summer, the combination of windfall export revenues and a total collapse of imports oversaturated the market with currencies. What we are seeing now is largely a return to equilibrium levels after a period of the unnaturally strong ruble. We will not delve into these technicalities and will focus on the general scope of the situation.
#RUSSIAN CURRENCY RATES FREE#
What lurks behind the ruble’s free fall then? As usual, the exchange rate is affected by a multitude of factors: export and import dynamics, the tax year end, foreign companies selling their assets in Russia, the difference between interest rates set by the Federal Reserve System and the Russian Central Bank, the Finance Ministry’s reduced currency selling rates, and so on. Russian oil has found new customers in China, India, and Turkey. Even though sanctions dealt a blow to Moscow’s fuel revenues, Russia’s trade balance still looks decent. Following the OPEC+ decision to cut oil production, the Brent crude price rose to $85, a comfortable price for Russia. There are now far fewer causes for worry. At the time, the currency markets were in full-blown panic, the dollar soared to 130 rubles, while the exchange rate fluctuations reached 10% a day. These are the lowest values that the ruble has hit since last spring when Russia’s invasion of Ukraine was just beginning.
At midday on Friday, the dollar was trading at 83 rubles, the euro - 91 rubles. What's more, European nations have vowed to cut their imports of Russian gas by two-thirds this year - a potentially crippling blow given Russia's dependence on energy exports.The ruble, the national currency of Russia, has been depreciating the whole week. "The Russian economy is losing approximately $200 million dollars a day - or $70 billion on an annual basis - as a direct result of the war." And in fact there are plenty of energy buyers who will not buy Russian oil at any price today, whether because of sanctions or because of reputational risk," he said.
"Nobody today would buy Russian oil at $120 a barrel. Pavel Molchanov, an analyst at Raymond James, noted that Russian oil is selling for $35 per barrel less than Brent crude, the international benchmark, reflecting the discount buyers demand for doing business with the nation. Although the ruble's bounceback and the strength of Russia's oil exports have temporarily cushioned its economy from sanctions, the effect is likely to be short-term, experts say. "While this is not a free market-determined exchange rate, ruble stability is at the same time 'real,' in the sense that it's driven by Russia's all-time high current account inflows," Elina Ribakova, deputy chief economist at the Institute of International Finance (IIF), said via email.Ī strong currency doesn't mean Russia is immune to economic pain, however. It doesn't actually mean they are being paid a fair price for their stakes, so they are not moving large amounts of cash from the country," she said.Īll these factors are creating demand for rubles, boosting the currency's value. "Although we are seeing these announcements that Western companies are leaving Russia, quite often they simply have to hand over their stakes to their local partners. (The conversion requirement was 80% until the end of May, when it dropped to 50%.) On top of that, Orlova noted, it's extremely difficult for foreign companies to sell their Russian investments, another obstacle to capital flight. Meanwhile, Russian exporters are required to convert half of their excess revenues into rubles, creating demand for the currency. "That used to be quite a significant source of outflows for currency from Russia - now that channel is closed," Orlova said. That includes a ban on foreign holders of Russian stock and bonds taking dividend payments out of the country.
Russia's central bank has also propped up the ruble with strict capital controls that make it harder to convert it to other currencies. "We have this coincidence that, as imports have collapsed, exports are soaring," Orlova said.
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