Russia’s Currency Is In Deep Trouble

Russia’s Currency Is In Deep Trouble
Daniel Johnston

6 months ago2 mins

What’s going on here?

Russia’s currency has dipped to a 16-month low against the US dollar.

What does this mean?

Ever since Russia invaded Ukraine, the ruble has been on a bumpy ride. First, it took a dramatic plunge, bottoming out at record lows against the dollar. But then the tables turned – and booming energy revenues helped lift it to a short-lived seven-year peak. Now, though, a bunch of factors are weighing the currency down again: two biggies are the government’s lavish defense spending and dwindling export revenues as Europe shifts away from Russian energy. And then there’s the fact that international sanctions mean no one wants to hold rubles – not even Russians, who’ve been racing to convert their cash into foreign currencies. Plus, while the central bank’s aggressive rate cuts (from 20% to 7.5%) might’ve seemed savvy last year, they’ve only added to the currency’s troubles. The outcome: the ruble’s taken a 25% hit this year, and was left languishing at a 16-month low against the US dollar on Monday.

Ruble vs dollar

Why should I care?

For markets: Interesting times.

While there’s a laundry list of reasons for the ruble’s recent tumble, fingers are mostly pointing at the central bank. The emerging consensus: it needs to hike interest rates, and fast, to give the currency a leg up. But that move’s no silver bullet, and it could backfire on Russia’s broader economy. Think stunted growth and pricier loans for companies and the government – especially troubling given Russia’s hefty military bills.

The bigger picture: Only fuels Russian.

Still, there’s some hope for Russia. A recent uptick in oil prices has helped its all-important oil and gas export revenue begin to rebound. And this sunny spell might stick around: Goldman’s crystal ball predicts oil prices will hover around their current mark this year, and nudge up to $93 a barrel by mid-2024.

Russia energy revenue
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