The Russian ruble rose to become the world’s best performing major currency reversed itself for a second day on Friday after the country’s central bank made an unusual rate cut.
The Russian currency fell 2.7% against the dollar in foreign trading on Friday, construction on Thursday fell 6.7%. According to data from Tullett Prebon, the ruble’s weekly decline increased to about 6.8%, the largest weekly drop since the second week of the war.
The ruble’s drop marks the latest story in a year of reeling trading for the Russian currency, which plummeted in the days after Russia invaded Ukraine – only to recover at breakneck speed. After weakening to an intraday record low of around 158 rubles/dollar on March 7, a series of moves by Russia’s central bank, combined with the country’s large export business, helped the engineer to recover the ruble.
Soon, however, the country faces a surprising dilemma. Western sanctions against Russia have begun weighed heavily on the country’s economy. However, the ruble has been the best performing currency in the world against the dollar this year, according to a Dow Jones Market Data analysis of 56 currencies. A strong ruble threatens to affect the country’s budget by reducing the value of oil and gas tax revenues denominated in dollars.
To combat the rising ruble, Russia’s central bank in April started cutting key interest rates, reversing the decision push rate to 20% in February after the Russian invasion. It wasn’t until Thursday, when the central bank cut its key interest rate for the third time – bringing it down to 11% from 14% and bringing it near pre-war levels – that the ruble’s rally finally cracked. cracked.
The ruble ended Friday at around 66.5 rubles against the dollar, falling back after rallying to nearly 55 rubles per dollar this week. However, it is trading nearly 140% higher than it bottomed out in early March following Russia’s invasion of Ukraine. It is now up about 12% for 2022, becoming the second-best performer this year, analysis from Dow Jones Market Data shows, trailing the Brazilian real.
Even with the recent decline in the ruble, traders, strategists and economists say it is still difficult to determine a fair value for the Russian currency. Few investors have traded the ruble since the war, and the volume is difficult to discern. Many say its recovery this year has been largely contrived.
“This is not a niche market that we are looking at,” said Jane Foley, head of forex strategy at Rabobank. “We have to keep in mind that the liquidity here is very thin, and when we have thin liquidity, we tend to have big market movements.”
Even with a weaker ruble, the Russian economy still faces growing economic problems.
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The central bank’s key rate cuts make holding the ruble less attractive. Another move aimed at weakening the currency is to relax rules that require exporters to convert 80% of their foreign currency revenue into rubles. The number has been reduced to 50%.
President of Russia
also asked European countries to pay for natural gas in rubles.
Even with a weaker ruble, the Russian economy still faces growing economic problems. Inflation in Russia is running high due to shortages and the country facing rising costs from the war in Ukraine. Economists expect the Russian economy to shrink by about 10% this year.
Write to Caitlin McCabe at [email protected]
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