The war is sinking the ruble. The Russian currency is experiencing a black Monday today, breaking the psychological barrier of 100 rubles per dollar, all this despite the measures introduced by the National Central Bank to stop its devaluation. It is the lowest figure since the end of March 2022, when two weeks after the start of the war in Ukraine it fell to 120 rubles per US dollar, on the Moscow Stock Exchange.
Against the euro, the ruble broke the three-digit barrier a few days ago, and today it has traded at 109.81 units per euro. 10 years ago they gave a little more than 40 rubles for each euro: the value of the Russian currency has more than halved. In many exchange houses in Russia the markers do not have three figures but only two, so at some point the ghostly scene of “00 rubles” appears.
“The calm attitude of the financial authorities towards the situation in the foreign exchange market leaves room for speculators to play against the Russian currency,” the Russian economic daily Kommersant warned in the morning.
The main factor in the fall of the ruble is the imbalance in the trade balance. The value of exports has fallen by a third since the second half of 2022. At first, the Russian authorities prevented the ruble from falling off a cliff by intervening in the money market. Now it looks difficult to get the currency out of that hole. It has not even benefited from the price of oil, a trump card that Moscow had managed to pull to its advantage.
The picture shows growing financial anxiety in the Russian economy, with fissures among top Russian officials over how to manage the situation. The Central Bank of Russia blamed the weakening of the ruble on falling export earnings and a recovery in imports. But the Kremlin’s top economic adviser, Maxim Oreshkin, said on Monday that loose monetary policy was to blame. Russia’s central bank raised interest rates last month to stem a nascent rise in inflation, but they have not been enough to stem the ruble’s slide.
The new stumble of the Russian currency seems to have its origin in the turbulent month of June, when the head of the Wagner Group, Evgueni Prigozhin, led a failed armed rebellion against the leadership of the Ministry of Defense.
So far this year, the ruble has lost almost 30% of its value against the dollar. A trader at a large Russian bank told Reuters the market was confused: “Everyone is ready for the inflow of revenue from expensive oil, but that seems to be still hanging on, and our regulators are somehow indifferent, there is no nothing to trust.”
Only a few currencies, such as the Turkish lira and the Nigerian naira, are having a worse year than the Russian currency. The isolation and closure of markets is seriously damaging the country’s finances. Russia’s current account surplus – a key factor in fueling the budget and consumption – shrank 85% compared to the same period last year, central bank data showed last week.
“The exchange rate has a significant impact on the social rights of our citizens,” Russian Senator Andrey Klishas lamented on Telegram. “The Russian economy is interested in having a strong ruble,” confirmed Oreshkin, who recalled that “a weak ruble complicates the restructuring of the country’s economy.”
During this year and a half of war the Russian economy has held up better than expected thanks to rising oil revenues and heavy government spending on all war-related production. In 2022 it contracted 2% and it is expected to end 2023 with minimal growth. With the debacle of the ruble, the cost of imports increases and so does the push for inflation. The central bank said last month that it expects inflation to rise to 6.5%.
The positive part for the government is that now it can earn more from its exports in foreign currency. But inflation and lack of confidence are two shadows hanging over the second half of the year in Russia.
According to The Wall Street Journal, the Russians have continued to move money abroad this year, with the steady flow rising to $1 billion after the Wagner mutiny in June. August is often a bad month for the ruble, as Russians who are able to leave exchange their rubles for foreign currency to finance vacations abroad.
The ruble debacle is not going to help Russia out of its worst labor shortage in decades: a falling ruble makes it less attractive to immigrants, who come mainly from Central Asia to save and send money home. home.
Hope is set, in the medium term, on oil, the ‘soul’ of the Russian economy. Since the beginning of the month, Brent North Sea crude has been hovering above $85 a barrel. The discount of the main Russian barrel, that of the Urals, has decreased to its lowest level since March of last year, and its prices exceed the “threshold” of 60 dollars per barrel. The lag between high oil prices and the inflow of foreign exchange through export earnings is approximately two to three months. According to some Russian analysts, a positive impact on the ruble is likely to be felt in September or October.
