By John Ikani
The Russian rouble has reached its lowest value in 16 months, slipping below 100 per US dollar.
The drop in value comes as the pressure mounts on the Russian economy. Imports are rising faster than exports, and there’s increased military spending due to the ongoing conflict in Ukraine.
Western countries imposed sanctions on Russia after its invasion of Ukraine in February 2022.
Initially, the rouble plunged when the war began. However, it received some support through capital controls and the export of oil and gas.
Since the war, its value has been fluctuating. Overall, it has lost about a quarter of its value against the dollar since the invasion of Ukraine.
On Monday, the rouble was at 101.04 per US dollar. A higher number of roubles per dollar indicates a weakening currency. This means it takes more roubles to buy a single US dollar, which is generally considered a strong currency.
Russia’s central bank has mentioned the possibility of raising a key interest rate but insists that the nation’s financial stability isn’t under threat.
According to Jane Foley, managing director at Rabobank London, the rouble has been gradually getting weaker this year. However, the pace of decline has accelerated since late July.
She noted, “The rouble’s weakness reflects a deteriorating situation in Russia.” Foley pointed out that the country’s budget is in deficit and it’s relying on imports from China and Turkey while facing pressure on its exports.
Russ Mould, investment director at AJ Bell, stated that Western sanctions, particularly on oil and gas, are hurting Russia’s trade and economy.
After the war started, many EU countries pledged to reduce their reliance on Russian oil and gas and find other suppliers.
In December 2022, G7 and EU leaders introduced a plan to cap oil prices, aiming to limit Russia’s revenue from oil exports to below $60 a barrel. This has contributed to the drop in Russia’s oil exports.
Russia also stopped gas supplies to Europe, raising concerns about power shortages. Germany, once a major importer, declared that it no longer relies on Russian fossil fuels for energy.
“Exports are down, so hard currency inflows are down, and imports are up. Even reliable trading partners like China seem hesitant to accept roubles,” explained Mr. Mould.
He added that Russia’s exclusion from Swift, an international payment system used by many financial institutions, has also impacted Moscow.
Mr. Mould noted, “The weakness of the rouble should also be seen alongside the strength of the dollar.” The US currency has gained ground against emerging currencies, partly due to the strong US economy.
He said, “The US Federal Reserve’s need to raise interest rates, unlike many emerging central banks, is boosting the attractiveness of holding dollars or assets denominated in dollars.”
Ms. Foley speculated that Russia’s central bank might raise interest rates in September to support the currency. This comes after the bank had lowered rates following the war’s onset.
