Showing posts with label Russian. Show all posts
Showing posts with label Russian. Show all posts

Monday, August 14, 2023

Russian Ruble Hits 16-Month Low Against US Dollar: Exploring the Causes and Implications

The value of the Russian ruble has dropped below 100 to its lowest level in 16 months against the US dollar

This fall is linked to mounting strain on the Russian economy as a result of higher imports than exports and rising military expenditures as a result of the conflict in Ukraine.

Western nations have sanctioned Russia after its invasion of Ukraine in February 2022.

When the war first started, the ruble fell, but capital controls and oil and gas exports helped it recover.

The value of the ruble has varied since the start of the conflict, but it has decreased by around 25% versus the dollar since the invasion of Ukraine.

The exchange rate for the ruble earlier in the day on Monday was 101.04.

Since the US dollar is often regarded as the most powerful currency in the world, the more roubles it takes to buy one dollar indicates that the currency is weakening.

Despite stating that it sees no threat to the nation's financial stability, the central bank of Russia has indicated that a crucial interest rate increase is possible.

The bank increased rates from 9.5% to 20% when Russia invaded Ukraine, but soon started lowering them.

The current rate is 8.5%, and the Russian central bank will debate potential rate increases at an emergency meeting on Tuesday.

Absence of Panic Regarding Ruble, Yet the Decline Poses Concern for Russian Citizens

No need to panic, but the decline of the rouble will be harmful to Russians The rouble has been "weakening progressively" this year, according to Jane Foley, managing director at Rabobank London, although  must also be set against dollar strength", with the American currency "gaining ground against emerging currencies across the board".

He mentioned that this situation could be attributed in part to the robustness of the US economy, asserting that it is compelling the Federal Reserve to increase interest rates in opposition to numerous developing economies central banks, which are starting to cut (notably Brazil and Chile)".

"Greater profits from holding funds in US dollars compared to lower yields in alternative currencies can enhance the relative appeal of maintaining greenbacks, or possessions denominated in those currencies," Mr. Mould supplemented. "The pace has accelerated since late July," was said.

She continued, "The rouble's weakness reflects a weakening fundamental backdrop in Russia," noting that the nation's budget was in deficit and that it was dependent on imports from Turkey and China but was under pressure to increase exports.

Russ Mould, investment director at AJ Bell, claimed that Western sanctions were hurting Russia's trade and therefore its economy, "especially for oil and gas."

Since the start of the war, many EU nations that relied on Russian oil and gas have vowed to gradually reduce their imports and find substitute supplies. 

G7 and EU leaders unveiled a price cap plan in December 2022 to restrict the amount of money Russia can make from its oil exports.

by attempting to keep it under $60 per barrel. This has contributed to the decline in the value of Russia's oil exports.

Furthermore, Russia took the step of discontinuing its gas provision to Europe, prompting apprehensions regarding potential power outages. Germany, a former major importer, declared in January that it no longer relied on the country's fossil resources for its energy needs.

Inflows of hard currency are decreasing due to decreased exports, while imports are increasing and even dependable trading partners like China seem unwilling to accept roubles, according to Mr. Mould.

Moscow had also been impacted by Russia's absence from Swift, a global payment system used by thousands of financial firms.

However, Mr. Mould asserted that the strength of the dollar should be contrasted with the weakness of the rouble. "advancing against emerging currencies generally."

He claimed that part of the reason for this was the robust US economy, which "is forcing the Federal Reserve to raise interest rates in contrast to many emerging central banks, which are starting to cut (particularly Brazil and Chile)," according to him.

"Enhanced yields on funds in US dollars coupled with diminished returns in alternate currencies can amplify the comparative allure of retaining greenbacks or investments valued in the same," Mr. Mould continued.