In the days following the start of Russia’s invasion of Ukraine on February 24, one of the most notable economic fallouts for Moscow came in the form of a crashing ruble.
The currency kept sinking to fresh record lows against the US dollar as Western sanctions piled up, much of the foreign currency reserves held by the Russian central bank were frozen and rating agencies downgraded Russia’s credit score to junk. At one point in early March, the ruble had crashed by more than a third.
The ruble has since recovered and is now trading around levels last seen before the invasion in a sign that the initial impact of sanctions, some of the harshest in history, could be wearing off.
A part of the recovery can be explained by a stronger financial position that Russia finds itself in thanks to a steep rise in revenues from oil and gas exports and a sharp drop in imports. Bloomberg Economics expects Russia will earn nearly $321 billion (€292 billion) from energy exports in 2022, up more than a third from last year, if its major customers, including the European Union, continue buying Russian oil and gas.
Experts say the rest of the rebound is a result of the ruble being artificially propped up by the Russian central bank through capital controls.
“The currency moves don’t represent the fundamentals of Russia. More often than not, you see the fundamentals reflected in the currency. But as soon as capital controls are put in place, then that obscures the picture,” said Craig Erlam, senior markets analyst at OANDA.
“There’s no way you can say the Russian economy now has the same outlook as it did in the middle of February before the invasion started, even if the currency would suggest that,” he told DW.
The Russian economy, which the IMF in January forecast would grow 2.8% this year, is now predicted to shrink 10%-15%.
Artificial boost for ruble
As the ruble tanked in the wake of the invasion and ensuing Western sanctions, the Russian central bank got into firefighting mode to rescue the sinking currency.
The bank more than doubled the country’s key interest rate to 20%, restricted local firms’ access to foreign currency, and set limits on withdrawals in foreign currency. It also took measures to keep dollars from fleeing abroad, including by banning foreign investors from dumping Russian stocks and bonds.
The ruble got another major boost when Russian President Vladimir Putin demanded that “unfriendly” countries pay for Russian gas in the Russian currency instead of euros or dollars.
Putin, however, climbed down from his initial position and allowed foreign buyers to continue paying in foreign currency but only after opening special accounts at Russia’s Gazprombank, which would convert the payments into rubles.
“It’s effectively just artificially supporting the ruble while appearing to be forcing buyers in hostile countries into utilizing the ruble currency,” Erlam said. “It’s like the measures that have been imposed on Gazprombank and others already in terms of forcing them to convert 80% of their currency payments into rubles. This further supports those types of desperate measures.”
Ruble fueled by ‘a lot of manipulation’
US Secretary of State Antony Blinken has said the ruble’s resurgence was being driven by “a lot of manipulation.”
“People are being prevented from unloading rubles,” Blinken told NBC on Sunday. “That’s artificially propping up the value. That’s not sustainable. So, I think you’re going to see that change.”
