Russian Ruble Reached its 17-Month Low. What’s Next?

Russia's ruble fell below 100 per dollar on Monday, near 17-month lows, after Russian President Putin's economic adviser Oreshkin blamed loose monetary policy for the ruble's rapid decline. The ruble has lost about 30% against the dollar YTD. Russia's central bank blamed the country's shrinking trade balance, with the country's current account surplus falling 85% YoY from January to July. Russia's central bank halted foreign exchange purchases for the rest of the year on Thursday, August 10, in an attempt to prop up the currency, raising concerns about rising inflation as Russia seeks to fundamentally transform its economy amid growing isolation and punitive Western sanctions.

New data from the Russian Federal Statistical Service showed on Friday, that Russia's GDP beat expectations, growing by 4.9% YoY in Q2 2023, recovering from a 1.8% contraction in Q1.

Russian Presidential aide Maxim Oreshkin made verbal interventions tackling to defend ruble. He wrote to a local media, that normalization of the ruble exchange rate is expected “in the near future”. According to him, the main reason for the national currency’s weakening is the soft monetary policy (but CBR has already lifted its key interest rate by 1 p.p. In July). The Bank of Russia also assumed a possibility of raising the key rate at its next policy meetings. Economists suppose that in order to feel some impact, it needs to act more aggressively towards 10% key interest rate. CBR outlined that further monetary policy tightening is necessary not so much to stabilize the falling currency, but to curb the domestic inflation at 4% level. At the same time, as Oreshkin wrote, the Bank of Russia has all the necessary tools to normalize the situation.

Bloomberg Russia economist Alexander Isakov thinks that the main reason of the ongoing currency drama is the imbalance of the currency supply. He mentioned an increasing delay in receiving revenue from the oil other energy resources exporters, and he said he expects an increase in the supply of currency closer towards September-October this year, when exporters are expected to sell the new, already increased, revenue, taking into account the growing oil prices.