Ruble Falling Continuously- Is Russia Paying For What It Did With Ukraine?

For 1+ year, Russia has been subject to severe sanctions because of the Ukrainian offensive. Seen on the Moscow Stock Exchange, the Ruble dropped to 82 rubles to the US dollar, its lowest level against the dollar in a year. A similar low was last reached in April of last year, two months after the Kremlin began its operation in Ukraine.

Although oil prices stayed close to recent highs, the Russian ruble fell to a level that is close to a year low against the dollar and the euro due to weaker FX supply and capital outflows under tight liquidity. The largest export from Russia and a global benchmark, Brent crude, was up 0.3% at $85.2 per barrel last week because of OPEC+’s unexpected production goal reduction.

Vladimir Putin admitted that the sanctions may have “bad” effects on his country even though he has formerly asserted that Moscow is mostly defying them. Anton Siluanov, the minister of finance for Russian territory, connected the rate to the inflows and outflows of foreign cash.

In an interview with state TV, he said that these modifications were linked to either an increase in imports or a relaxation in export regulations. He stated that throughout the earlier few months, the pattern has fluctuated. Considering the words of Siluanov, the currency rate heeds market principles and floats in the face of shifting international economic situations.

When asked if Russians should be concerned, he responded that the country could rely on money transfers from the energy it still sells on the international market. Considering the analysis of Siluanov, it is a sign that more foreign cash will enter the country, which will cause the ruble‘s exchange rate to trend towards strengthening. According to Russia, the process of adapting its economy to Western sanctions should be complete by 2024.

Why is the Ruble falling?

It seems that Russia is paying for what it did with Ukraine. The market has long predicted that the rouble will decline, but few had predicted it to do so so quickly. Considering the data from the experts, the rouble’s weakening was partly caused by capital outflows from Western investors selling assets, rich Russian citizens exchanging roubles, and recurring Eurobond payments that required to be quickly converted into hard currency.

Several pundits also maintain that the recent rapid changes are mostly local and are a result of the FX market’s decreasing liquidity, with the expectation that the rouble currency will soon stabilise. Less FX supply is harming the rouble even if rising oil prices typically strengthen it. There was the deadline for month-end tax payments, which typically require exporters to convert their foreign exchange earnings into rubles.

As EU leaders contemplate fresh sanctions against Russia over its actions in Ukraine, the Russian ruble may see greater lapses. Politicians, military commanders, and Russian banks are anticipated to be targeted. The recent round of sanctions on Russia, which included a $60 price ceiling on Russian crude and a ban on imports of Russian oil, is mostly to blame for the decline. Russian President Vladimir Putin has directed the process to be “stupid,” refusing to observe the price cap and threatening to retaliate against any country that does. Putin had already told the populace that the Russian economy was strong.

However, despite being prohibited from selling their assets in Russia without consent from a special government body, dozens of international corporations have left Russia since Moscow began its invasion of Ukraine last year. According to estimates, multinational businesses that left Russia sold assets valued between $15 billion and $20 billion as a group last year. Over 2,000 international businesses are waiting for the Russian government’s approval to sell their enterprises there and repatriate money.

Russian cash inflows stayed muted as sanctions forced the Urals oil benchmark to trade at significant discounts to its competitors.  Despite a rise in exports to India and China, energy revenues fell short of the budget’s objective because the Finance Ministry was forced to sell foreign currency as part of its intervention programme for the fourth consecutive month. 

Disclosure.

Yet, taking the opinions from several economists, the rouble may enrich its value throughout the session due to higher oil prices and increased demand from businesses that export. Let’s see what is written in the fate of Ruble in the upcoming months of 2023!