Putin’s plan to prop up the ruble is working. For now

How much is Russia risking by charging for its gas only in rubles? 6:42

Londres (CNN Business) — The barrage of sanctions imposed by the West following the Russian invasion of Ukraine decimated the ruble. But a month following the tanks rolled in, the currency has fully recovered and is now trading at pre-war levels. How is it possible?

Russia’s Central Bank has clamped down in recent weeks to intervene in the market, enforcing policies to prevent investors and companies from sell the coin and other measures that force them to buy it.

What has Moscow done to boost the ruble?

• The Central Bank has doubled interest rates to 20%. This encourages Russian savers to keep their money in local currency.
• Exporters have been ordered to exchange 80% of their foreign currency earnings for rubles, instead of keeping dollars or euros.
• Russian brokers have been banned from selling securities held by foreigners.
• Residents cannot make bank transfers outside of Russia.
• Russia has threatened to demand payment for natural gas in rubles, not euros or dollars.

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These measures have allowed Moscow to artificially manufacture the demand for the ruble. The problem policymakers face is that, with the Russian economy in shambles, no one wants to buy the currency of their own free will. When the restrictions are lifted, the demand for the ruble will fall, and its value will plummet, perhaps dramatically.

The same goes for the Russian stock market. The benchmark MOEX index tended to rise when trading resumed a week ago following a long war-forced halt, but analysts say that is due to restrictions placed on investors, including a ban on short selling. When the market reopened, only 33 securities were allowed to trade. When trading was extended to all stocks this week, the index fell once more.

With this in mind, the rebound in the ruble and movements in the stock market should not be taken as a sign that the Russian economy is recovering. The country is facing its deepest recession since the 1990s, with the economy set to shrink by a fifth this year, according to a recent forecast from S&P Global Market Intelligence.