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The Russian ruble’s downward spiral continues as it inches closer to the 100 per dollar mark. In Moscow trading on Tuesday, the ruble breached 97 per dollar, reflecting a 23% depreciation against the greenback this year alone. This plunge in value places the ruble among the worst-performing emerging-market currencies, joining the ranks of the Turkish lira and the Argentine peso. The ongoing slide is attributed to escalating currency outflows, strained foreign trade conditions, and the weight of sanctions stemming from Russia’s involvement in the Ukrainian conflict.
With a dwindling current account surplus, analysts estimate that July’s balance is anticipated to hover near zero after turning negative in the previous month. The ruble’s free fall is largely attributed to deteriorating foreign trade conditions, as Governor Elvira Nabiullina of the Central Bank of Russia emphasizes. Despite the ruble’s decline, the central bank has refrained from intervening to stabilize the exchange rate, citing the adverse impact of trade conditions. As the ruble approaches a level last witnessed shortly after the 2022 invasion, concerns are raised over capital flight and the substantial shift of Russian deposits to foreign banks, driven by subdued ruble interest rates and restricted access to global payment systems.
As the ruble’s downward trajectory persists, the central bank’s strategic moves are coming under scrutiny. A recent key interest rate hike to 8.5% marked the first increase since emergency measures were enforced post-invasion, aiming to counter inflation risks caused by government spending, sanctions, and labor shortages due to military conscription. The potential for a further rate hike to 9.5% and government expenditure reduction could provide a lifeline for the ruble in the coming months. However, the currency now lacks the backing it previously received from Finance Ministry forex sales as the authorities transition to purchases under the fiscal rule. While experts anticipate the ruble’s decline to persist, the psychological threshold of 100 per dollar is looming, reflecting the challenging road ahead for Russia’s currency stability.