The ruble weakened beyond the psychologically important level of 100 to the dollar for the first time since March last year, as Russia’s war in Ukraine drags on and international sanctions throttle the economy.
(Bloomberg) — The ruble weakened beyond the psychologically important level of 100 to the dollar for the first time since March last year, as Russia’s war in Ukraine drags on and international sanctions throttle the economy.
The currency fell 1.5% to 100.975 in its fifth day of losses even after Russia’s central bank sought to arrest the slump by halting its foreign-currency purchases on the domestic market for the rest of 2023. It has weakened 26% this year for the third-worst performance in emerging markets.
Moscow has run a budget deficit for eight successive months as it tries to hold up an economy battered by shrinking export revenues and its isolation from international financial markets. Bank of Russia Governor Elvira Nabiullina has repeatedly cited deterioration in trade as the main reason for the ruble’s weakness. Meanwhile, an aide of President Vladimir Putin seemed to criticize the central bank’s policies for it.
“The source of the weakening of the ruble and the acceleration of inflation is soft monetary policy,” Putin’s economic aide Maxim Oreshkin wrote in his column for state agency Tass on Monday. Russia needs a strong ruble, and policymakers have the necessary tools to normalize the currency value in the near future, he said.
The central bank announced last week it would stop buying foreign currency on the domestic market under a budgetary mechanism that was put in place to insulate the economy from swings in commodity prices. The decision aimed to “reduce the volatility of financial markets,” it said.
“The weakening of the ruble is the result of the international screws tightening around the Russian economy, but also the cost of keeping the economy going,” said Erik Meyersson, chief emerging-market strategist at SEB AB in Stockholm. “Nobody wants to hold rubles, and the limited supply of foreign exchange from exporters weighs on the currency. Meanwhile, the current account has been weakening, amid surging imports and lower export revenues, which further adds pressure.”
Revenues of Russian oil and gas exporters declined to $6.9 billion in July from $16.8 billion in the same period last year, according to the latest central bank data. An easing of restrictions on moving money abroad has also led to accelerated capital flight as Russians race to shift funds into foreign accounts.
What Bloomberg Economics Says…
“To stabilize the ruble, we estimate the policy interest rate needs to rise closer to 10% and federal budget spending must be kept within the fiscal ceiling. The ruble may benefit from higher crude oil prices, but domestic monetary policy will remain a more reliable anchor for the currency. The Bank of Russia will need to hike the policy rate by 50-100 basis points at its Sept. 15 meeting to boost domestic savings and reduce imports.”
—Alexander Isakov, Russia economist. For more, click here
The central bank hiked its key interest rate by a percentage point to 8.5% last month, the first increase since emergency measures imposed immediately after the invasion of Ukraine.
“We don’t see any risks to financial stability” from the ruble’s decline, Bank of Russia Deputy Governor Alexey Zabotkin told reporters Friday. The central bank continues to adhere to a floating exchange-rate policy that “allows the economy to adapt effectively to changing external conditions,” he said.
–With assistance from Srinivasan Sivabalan, Colleen Goko, Evgenia Pismennaya and Paul Abelsky.
(Recasts throughout with quote, Kremlin’s comments, ruble’s latest level.)
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