Despite several waves of sanctions by Western countries, the day after the US announced that it had also included Putin’s daughters in the restrictions, the ruble returned to pre-war levels. And today and in rally, in fact the dollar is losing 4.2% to 76.5 (81.6 the value before the invasion of Ukraine). Meanwhile, the Moex index in Moscow (protected by the ban on short selling) rises by 1.25%. Although Russia remains increasingly isolated from a large part of the world economy, it continues to be paid for gas and oil, it finds support from India, which buys oil from the Urals in rubles and from China, which pays in yuan. According to the Bloomberg Economics database, Russia will earn a whopping 321 billion from energy exports in 2022,
In the country’s post-Soviet history, the ruble-dollar rate is probably the economic indicator that Russians care about the most. The local currency plummeted after the outbreak of hyperinflation in the early 1990s and after Russia’s default in 1998. Then the ruble started to breathe again and during the 2008 global financial crisis, Moscow sold billions of dollars for to slow down the weakening of the currency and to avoid the rush to bank branches by the frightened population. The governor of the Russian Central Bank, Elvira Nabiullina, decided to take a risk in 2014 despite the sanctions after the annexation of Crimea and the drop in oil prices by choosing to let the currency move freely on the markets.
In response to this year’s sanctions, Russia has enacted capital control laws that are backing the ruble in turn. The new rules include the freezing of assets held by non-resident investors and the obligation for Russian companies to convert 80% of foreign currencies into rubles. The Russian currency is moving in a thin trading market, at the lowest levels of the last ten years, according to the Bloomberg database and is largely subject to controls and restrictions. However, the proceeds from gas and oil are a great support on the trade surplus front, with Russia exporting more than it buys from abroad.
“A current account surplus should actually be another source of stability for the ruble,” explained Brendan McKenna, strategist at Wells Fargo Securities. “If energy prices remain high and large importers of energy and raw materials continue to buy, the current account should remain in surplus,” added the analyst.
Meanwhile, the US is trying to push Russia into a technical default, preventing Moscow from tapping into the Central Bank’s frozen foreign dollar funds right away to pay for emissions over $ 600 million. This was seen yesterday when JP Morgan, the foreign correspondent bank, refused to make the payment to creditors. The new American sanction intends to push the country that invaded Ukraine towards technical default. In fact, if Russia has liquidity to pay its creditors (only half of the 640 billion dollars of foreign reserves and frozen), it is prevented from doing so so that after 30 days from the maturity of the bonds, the rating agencies can declare default. It would be the third time after 1917 and 1998.
“Sanctions will require time adjustments to become effective,” commented Elina Ribakova and Benjamin Hilgenstock, economists at the Institute of International Finance. Meanwhile, Russian coal and oil paid for in yuan are about to start flowing into China, demonstrating Beijing’s substantial proximity to the country that invaded Ukraine on February 24. Several Chinese companies used local currency to buy Russian coal in March and the first shipments of raw material will arrive this month, according to consulting firm Fenwei Energy Information Service Co. Moscow is offering payments in rupees and rubles to Indian buyers, while the Saudi Arabia is in talks with Beijing to price part of the crude oil in yuan. (All rights reserved)
