Key takeaways
- The Russian ruble has weakened significantly and is approaching 100 rubles per US dollar.
- The authorities accept this decline and will allow the ruble to reach 100 per dollar due to planned higher spending next year.
- A weak ruble has inflationary consequences, but is seen as beneficial for the state budget.
The Russian ruble weakens
The Russian ruble has weakened significantly and is approaching 100 rubles per US dollar. This time, however, the authorities seem to accept this decline. Two sources familiar with government policy said a weaker ruble is no longer a major concern and will even benefit the state budget due to planned higher spending next year. They indicated that officials are willing to allow the ruble to become worth $100.
The answer of the Bank of Russia
The Bank of Russia has been using interbank transactions to determine the value of the ruble since the Moscow stock exchange halted trading in dollars and euros in June due to US sanctions.
These sanctions have exacerbated a foreign currency shortage, leaving the ruble about 9 percent weaker than on the last trading day before the shutdown. A US deadline for entities to cease trading on the exchange expired on October 12.
Oleg Vyugin, a former senior official of the Bank of Russia, noted that the current situation may not make a ruble rate of 100 per dollar alarming, but it does have inflationary consequences. The government and central bank have not yet responded to requests for comment.
The decline of the ruble against other currencies
In addition to the decline against the US dollar, the ruble has also weakened against the Chinese yuan, which has become a favored alternative to what the Kremlin considers “toxic” currencies since Russia’s 2022 invasion of Ukraine. The Russian currency has fallen 11 percent against the yuan on the Moscow exchange, reaching a low of 13.26 since May.
Government forecasts and response
The ruble crossed 100 to the dollar twice last year. Both times this led to a swift response from the central bank, which raised the key interest rate by 350 basis points at an emergency meeting in August 2022. In October, the government introduced stricter capital controls, requiring 43 groups of exporters to transfer 80 percent of their foreign reduce income and trade almost all of them again in rubles on the local market.
Forecasts from the Ministry of Economic Affairs indicate that the government expects a weaker currency. Officials predict an average exchange rate of 96.5 rubles per dollar in 2025, compared to 91.2 this year.
Exporters and importers
The ruble’s recent weakness has been attributed to the challenges faced by both importers and exporters in foreign trade payments. Dmitry Polevoy, investment director at Moscow-based Astra Asset Management, stressed that US threats of secondary sanctions against banks in Russia’s main trading partners have led to payment problems for companies. They now receive less foreign currency and face more problems sending it back to Russia from countries such as China and Turkey.
In response, the government has relaxed previously taken measures to support the ruble. The mandatory conversion of export proceeds was reduced from 50 percent to 25 percent, as stated in a decision late Friday. This comes after previous measures where the obligation to reduce income was reduced to 60 percent in June, followed by a further reduction to 40 percent a month later.
Analysis by Natalia Milchakova
Natalia Milchakova, an analyst at Freedom Finance Global in Kazakhstan, noted that the government is essentially accommodating exporters. Bank of Russia data showed that currency sales by Russia’s top exporters fell 30 percent in September from the previous month, as a greater share of transactions were in rubles.
Past and future of the ruble
After it begin After the war, the ruble initially fell to around 120 per dollar. However, the recovery came quickly after the central bank more than doubled the key interest rate to 20 percent in an emergency measure, before gradually cutting it again. Rates, currently back at 19 percent, could rise to that high when policymakers meet next week, as the central bank looks to cool Russia’s overheated wartime economy and accelerating inflation, which is more than double its target of 4 percent, wants to curb. According to Milchakova, the central bank will likely have to use monetary policy to mitigate the negative consequences of the weak ruble, especially high inflation.
Vyugin stated that a low exchange rate is always beneficial from a budgetary point of view.
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Welcome to the Currency Circus!
Ah, the Russian ruble – that rollercoaster of a currency that’s got us all holding onto our hats and hoping our wallets don’t suffer from motion sickness! With the ruble wobbling towards that ominous mark of 100 rubles per US dollar, it seems our Russian friends are throwing caution to the wind and accepting that steep dive like a daring thrill-seeker at a theme park.
What’s Going on with the Ruble?
So, let’s break it down. The ruble is acting a bit like that uncle at a family gathering – he’s been drinking too much and is now staggering towards the dollar, trying not to embarrass himself. The authorities have decided that a weak ruble isn’t such a tragedy after all. They’ve got big plans for spending – think of it as an economic shopping spree fueled by some rather questionable budgeting decisions. The upside? The state budget gets a boost. It’s like saying, “My car may not run, but at least I’ve got a great view from the passenger seat!”
Bank of Russia: The Currency Bouncers
Now, when it comes to the Bank of Russia, they’re taking control of the situation like bouncers at a nightclub – no entry without proper ID, and certainly no drunken antics on the dance floor! After halting trading in dollars and euros due to pesky US sanctions, the bank is now using interbank transactions to make the ruble feel a little more important. It’s like saying, “Hey ruble, you’re still in the game, buddy!” Meanwhile, the ruble has lost itself in translation, being a solid 9 percent weaker than when it last went out on the town.
Inflation: The Inflatable Clown
Let’s not forget the pesky inflation that comes with a weak ruble. It’s a bit like an inflatable clown – whimsical but ultimately annoying when you realize it’s sucking the life out of your purchasing power. Oleg Vyugin, our economic oracle, says we might have to brace ourselves for some inflationary shenanigans. The government and the central bank seem to be holding onto their comments tighter than a dog with a bone, leaving us all guessing. Meanwhile, the ruble’s also taking a beating against the Chinese yuan, as if it’s lost a fight with a martial artist – down 11 percent! Ouch!
Predictions that Elicit Pity
As we rub our crystal balls, forecasts from the Ministry of Economic Affairs suggest a new average exchange rate of 96.5 rubles to the dollar come 2025. Great! Just what the world needs – a crystal ball with constantly shifting views. It’s like trying to predict the weather in London; the only certainty is that it’ll eventually rain!
Cash Flow Confusion
What’s caused this weakness, you might ask? Well, it’s a lovely blend of import-export tango missteps and the ever-looming specter of US sanctions – like that one party Alex Reed who just won’t leave. Dmitry Polevoy tells us that there are now more red flags in currency payments than at a bullfighting ring! And so, the government has begun to ease up on those previously tight measures, reducing mandatory currency conversion like a magician pulling a rabbit out of a hat.
In Conclusion: The Great Ruble Mystery
In this ever-turning merry-go-round of currency chaos, we understand that the Russian government is trying to ride the wave without wiping out. The ruble went on a wild ride after the war started, dipped to a terrifying low of 120 per dollar, then crashed back up as interest rates skyrocketed like the latest blockbuster. And while they may want the ruble to benefit the budget on paper, let’s hope it doesn’t put the ruble in a chokehold of inflation we’re struggling to escape. Just remember, folks, the only thing more unpredictable than the ruble might just be my Uncle’s dance moves after a few too many vodkas!
So, brace yourselves for the economic circus, folks – we’re still figuring out who’ll be the ringmaster in this wild show!
