The Russian economy is getting more and more stressed because imports are rising faster than exports and military spending is going up because of the Ukraine war. After Russia’s invasion of Ukraine in February 2022, Western countries have imposed penalties on Russian.
When the war started, the ruble fell, but capital controls and oil and gas exports helped it recover.
Its value has gone up and down since the war, but since Ukraine was attacked, it has lost about a quarter of its value against the dollar.
On Monday morning, one US dollar was worth 101.04 roubles. The currency is getting weaker if it takes more roubles to buy one US dollar, which is usually thought of as the strongest currency in the world.
Russia’s central bank has said that it is possible to raise a key interest rate but that it does not see any threat to the country’s financial security.
When Russian attacked Ukraine, the bank raised interest rates from 9.5% to 20%, but it didn’t take long before it started lowering them again.
The current rate is 8.5%, and on Tuesday, the central bank of Russia will hold an emergency meeting to talk about a possible rate increase.
The rouble has been “weakening gradually” this year, according to Jane Foley, managing director of Rabobank London. Additionally, she stated, “The pace has picked up since late July.”
“The rouble’s weakness shows that Russia’s fundamentals are getting worse,” she said, pointing out that the country’s budget was in the red and that it relied on imports from China and Turkey but was under pressure to increase exports.
Russ Mould, the investment head at AJ Bell, said that Western sanctions were hurting Russia’s trade and economy, “especially for oil and gas.”
Since the war started, many EU countries that used to get their oil and gas from Russia have promised to stop getting it from Russia and find other sources.
In December 2022, leaders from the G7 and EU came up with a plan to try to keep the price of a barrel of oil below $60. This was done to limit the amount of money Russia could make from selling oil abroad. This is one reason why the value of Russia’s oil supplies has gone down.
Russia also turned off the gas taps in Europe, which made people worry that the lights would go out. Germany, which used to be a big supplier, said in January that it was no longer getting its energy from fossil fuels from the country.
According to Mr. Mould, “Hard currency inflows are down as a result of decreased exports.” At the same time, imports are up, and even dependable trading partners like China seem reluctant to take roubles.”
Additionally, he claimed that the expulsion of Russia from Swift, an international payment system that thousands of financial institutions used, had a negative impact on Moscow.
According to Mould, the ruble’s “weakness must also be measured against the value of the dollar,” which is “gaining ground on all emerging currencies.”
He said that this was partly because of how strong the US economy was, which “forces the Federal Reserve to raise interest rates while many emerging central banks, like Brazil and Chile, are starting to cut” rates.
According to Mr. Mould, holding dollars themselves or assets denominated in dollars can make holding dollars a more attractive investment. As a result of higher returns on funds gained in dollars and fewer rewards earned in other currencies, “this may become feasible.”
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