The Russian ruble has joined the ranks of the worst performing emerging-market currencies in recent weeks, according to Bloomberg. Alongside the Turkish lira and the Argentine peso, the ruble has experienced a significant depreciation, as calculated using trading data. This downward trend began in early June, with the ruble weakening against the US dollar. At that time, one dollar was valued at approximately 80-81 rubles. However, the ruble hit a new low this week, dropping to 98 rubles against the greenback. This represents its weakest level since late March 2022 when Russia’s military operation in Ukraine began. Year-to-date, the ruble has depreciated by around 24% against the dollar.
The Russian central bank offered an explanation for the ruble’s weakness, citing changes in the foreign trade balance and low volumes of foreign exchange revenues from exporters. While imports in the country have increased, Western sanctions have led to a decline in exports, which are a crucial source of foreign currency. Furthermore, Russia has been trying to shift its trade with foreign partners to national currencies, such as the ruble, which has resulted in a reduced inflow of dollars and euros.
In addition to these factors, the proceeds from foreign currency earnings sales by Russian exporters have been significantly lower this year compared to 2022. For example, sales in July amounted to $6.9 billion, a stark contrast to the $16.8 billion recorded in the same month last year.
Economist Alexander Isakov from Bloomberg suggested that the ruble’s depreciation could also be attributed to capital outflow. He explained that rising government expenditure has increased the demand for imports, while simultaneously experiencing a decline in exports. This imbalance, coupled with households transferring money to foreign banks due to insufficient ruble interest rates, has further weighed down the ruble.
However, Isakov also predicted a potential short-term support for the ruble if the central bank decides to raise the key interest rate to 9.5% and the authorities cut back on spending.
In response to the weakening ruble, Russia and Qatar have been working on shifting their trade to national currencies, as reported by RT. This move aims to reduce reliance on the US dollar and strengthen bilateral economic ties between the two countries.
In conclusion, the Russian ruble has experienced a significant depreciation against the US dollar, making it one of the worst performing emerging-market currencies. Factors such as changes in the foreign trade balance, declining exports due to sanctions, and efforts to shift trade to national currencies have all contributed to the ruble’s weakness. Additionally, capital outflow and insufficient ruble interest rates have further fueled the depreciation. However, there are potential measures, such as raising interest rates and reducing government spending, that could provide temporary support for the ruble.