The Russian ruble strengthened near its pre-invasion level against the dollar on Thursday, a byproduct of the central bank’s tight control over the currency. Also at stake is a possible increase in end-of-quarter payments for Russia’s commodity exports.
The ruble’s rapid rebound surprised some who expected Western sanctions targeting Russia’s financial system to cause prolonged weakness in the currency. On the eve of Russia’s invasion of Ukraine, the ruble was trading at 81 to the dollar. In early March, it tumbled past 150 before strengthening in recent days. One dollar bought 82 rubles in international trade on Thursday and 83 rubles in Russian domestic markets.
The ruble ricochet came after Russia capped the dollar amount residents can withdraw from foreign currency bank accounts and banned banks from selling foreign currency to customers for six months. The central bank also doubled interest rates to 20% to keep rubles in the banking system.
Western sanctions have limited the Russian central bank’s ability to sell its dollar and euro-denominated reserves to support the value of the ruble. But the sanctions exclusions allow Europe to continue buying Russian energy and ensure that dollars and euros keep flowing. Russia ordered its exporters, such as oil and gas companies, to sell 80% of their foreign currency earnings and buy rubles, which helped the currency appreciate.
A possible factor in the strength of the ruble in recent days: energy payments are often made at the end of the quarter. Companies also tend to convert foreign currencies into rubles to pay their taxes at month-end and quarter-end, according to analysts at Renaissance Capital, an emerging and frontier markets investment bank.
Charlie Robertson, Renaissance’s chief global economist, said ruble strength is not necessarily a sign that the Russian economy is recovering or a sign that sanctions are not having an effect.
“People want to see Russia destroyed by sanctions, so anything that suggests Russia isn’t destroyed disappoints those who want it,” Robertson said. He says the sanctions are more about slowing Russia’s long-term growth.
It’s possible the ruble could weaken again in the coming weeks as the current liquidity injection fades, Robertson said. He expects the ruble to trade between 85 and 105 to the dollar for the rest of the year.
The ruble’s recent gains mean little to ordinary Russians who can only change a limited amount of rubles into foreign currencies or cannot buy goods denominated in them at all after Western payment providers halted purchases abroad. ‘foreigner.
“It’s theater for the domestic audience,” said John Hardy, head of foreign exchange strategy at Saxo Bank. “It’s a classic capital control situation.”
The ruble’s rebound theoretically relieves Russia of imported inflation. When a country’s currency dips, the cost of foreign goods increases. But a series of Western companies have suspended the sale of goods to Russia, so the impact could be more muted. The prices of goods produced in Russia, such as foodstuffs, are already rising and would not be affected by the rouble.