On Monday, the exchange rate of the ruble against the dollar hit a new low for the first time in more than a year. After the outbreak of the Russia-Ukraine conflict in March 2022, the ruble exchange rate strengthened rapidly, supported by the significant rise in energy prices. However, over the past year, the ruble-to-dollar exchange rate has been steadily depreciating.
Since the beginning of the year, the ruble has fallen more than 30% against the dollar and the euro. Elvira Nabiullina, the head of the Central Bank of Russia, attributed the weakness of the ruble to the decline in foreign trade and blamed the exacerbation of inflation on increased government spending and the costly war causing a labor shortage.
In a statement on Monday, the Central Bank of Russia said that despite rising import demand, the value of exports is facing a "significant decline" due to increased government spending and rapid loan growth, with the imbalance of imports and exports being the main reason for the continuous depreciation of the ruble.
In July of this year, the Central Bank of Russia raised its key interest rate to an unexpectedly high 8.5% to halt the fall of the ruble, but so far, it seems to have had little effect. Alexei Zabotkin, Deputy Governor of the Russian Central Bank, said last Friday that the central bank will continue to adhere to a floating exchange rate policy, allowing the economy to effectively adapt to changing external conditions, and that the depreciation of the ruble will not pose a threat to Russia's financial stability.
However, Maxim Oreshkin, an economic adviser to the Russian government, blamed the Central Bank for the ruble's depreciation. In a column for Itar-Tass, Oreshkin wrote that the root causes of ruble depreciation and accelerated inflation are the central bank's weak monetary policy.
Previously, Russian President Putin had requested that countries importing natural gas from Russia pay in rubles according to contract specifications. However, not only have Western countries not complied with Putin's request, but they are also gradually reducing their reliance on Russian oil, natural gas, and coal.
Financial institutions and analysts have said that the recent fall of the ruble is due to factors such as the imbalance of imports and exports and intensified capital outflows. Albrecht Rothacher, who worked at the European Commission for 30 years, said that due to measures limiting the price of Russian crude oil by Europe and the US, Russia can only export crude oil at a discount, which has a continuous impact on the country's trade imbalance.
The latest data from the Central Bank of Russia shows that the revenue of Russian oil and gas exporters in July fell from $16.8 billion in the same period last year to $6.9 billion (€6.3 billion). Elina Ribakova of the Peterson Institute for International Economics points out that the depreciation of the ruble is due to the shrinkage of oil and gas exports.
In addition to the pressure on the Russian economy and the ruble exchange rate formed by energy exports. The withdrawal of domestic companies and foreign investors is also one of the main reasons for the continuous depreciation of the ruble. Since the outbreak of the Russia-Ukraine conflict last year, Bloomberg estimated that foreign companies have sold Russian assets worth between $15 billion and $20 billion.
Ribakova said that sanctions from Western countries, especially the European Union's ban on buying Russian crude oil and petroleum products, are having a greater impact, particularly damaging Russia's economic prospects in the long term and forcing Russia to rely more on China for support in related areas.
Rothacher said that China is using Russia's cheap crude oil and other energy export prices to supplement official and civilian reserves on one hand and to support the gradually slowing economic growth momentum on the other.
On Monday, Alor Broker analyst Alexei Antonov warned in a report that without decisive measures from the monetary authorities or an improvement in trade balance, the ruble exchange rate against the dollar might further decline to 115-120 rubles per dollar, or even slide to the historical low at the outbreak of the Russia-Ukraine conflict.
Russian economist Alexander Isakov believes that at the meeting to be held in September, the central bank will need to raise interest rates by 50-100 basis points to boost domestic savings and reduce imports. The central bank's monetary policy is crucial to the trend of the ruble, and Isakov estimates that to stabilize the ruble exchange rate, the policy rate needs to rise to a level close to 10%.
