The ruble (RUB), Russia’s currency, seems to be making what monetary analysts described as a limited recovery against the US dollar as the Bank of Russia cut its key rate by 300 basis points from 20 per cent to 17 per cent on Friday, April 8, 2022
At the time of publication, 1 USD exchanged for 79.68 RUB (though remains unstable) as against $1 to 87 RUB in March 29, 2022, when we compiled the list of the weakest currencies in Europe
Trouble started with the Russian ruble when the West and some European countries imposed stiff economic sanctions on the Vladimir Putin-led government following its invasion of its neighbours Ukraine on February 24, 2022.
In what was unexpected, Russia’s apex bank stated that “Financial-stability risk no longer rising. Further cuts could come at future meetings.” The next regular meeting is scheduled for April 29, 2022.
The measure is to push back the harsh economy that awaits the country for what the United States described as the human rights abuses in the Russia-Ukraine war, which has led to hundreds of deaths and displacing thousands of Ukrainians and foreign nationals in Ukraine.
Annual inflation in Russia accelerated to 16.70 per cent – the highest since March 2015 – barely five weeks it invaded Ukraine.
Since then the ruble has been volatile which led to increasing in the price of goods within the country, following economic restrictions that limit Russia’s access to the global financial and trade markets.
The Bank of Russia was confident in the emergency steps taken since the war began, according to a brokerage expert
“The rate is likely to be cut by another 100-200 bps in April, yet it will require additional positive dynamics on inflation and inflationary expectations,” the head of investment at Locko-Invest, a Moscow-based brokerage firm, Dmitry Polevoy, as saying.Reauters
Monetary Measures By Russia
When sanctions roll in in succession for the Putin-led government, one of the monetary measures the government took was to prevent funds from leaving the country, including stopping foreign investors from selling Russian stocks and bonds.
Some countries tagged “unfriendly” countries (by Putin) were also mandated to make payment for Russia’s gas in ruble rather than US dollars or Euros.
That action boosted its monetary confidence.
Any Comparative Advantage?
The Russian government isn’t relenting in using its oil and gas as its comparative advantage.
But how long would a country which has been restricted into a local economy sustain the value of its currency against the US dollars, EUR and other major dominant currencies in the global market?
If consumers of Russia’s energy find alternatives, that may signal a threat to the Russian energy exports and impact its economy.
Russian natural gas makes up a large percentage of the fuels used across Europe. Leaders in Europe are calling for a ban on Russian oil and gas and coal.
It is war, no one can claim victory at this time. Everything is shrouded in uncertainty. And trading the USD against the ruble may be risky as a result of volatility.