When Russia launched its illegal war of territorial aggression against Ukraine in February of 2022, many observers thought western financial sanctions would quickly crash the Russian economy. When Russia was cut out of SWIFT, the Ruble plunged to below a penny against the dollar, but quickly recovered, at least a bit.
Due to various reasons (gas and oil sales, gold transfers, and the many loopholes EU countries have made for their sanctions), Russia’s economy hasn’t collapsed as quickly as many expected, or hoped.
But just today, the ruble finally slipped back below the penny-parity line again.
Russia’s central bank called an extraordinary meeting Tuesday after the ruble crashed through the level of 100 to the dollar for the first time since March of last year as Russia’s war in Ukraine drags on and international sanctions hit trade.
Policy makers will publish a statement on the key rate at 10:30 a.m. after the meeting, the Bank of Russia said in a statement, without giving any further details. The central bank hiked its key rate by a percentage point to 8.5% last month, the first increase since emergency measures imposed immediately after the invasion of Ukraine in February 2022.
The exchange rate has emerged as the barometer of health for an economy battered by shrinking export revenues and its isolation from international financial markets, bringing infighting between the government and central bank into the open.
The ruble reversed losses after the announcement, traded up 1.8% at 97.6625 at 7 p.m. in Moscow. The currency, which had broken through 101 earlier on Monday, has weakened about 27% this year for the third-worst performance in emerging markets. The central bank had sought to arrest the slump by saying it won’t purchase foreign currency on the domestic market for the rest of 2023.
Yeah, no one trusts Russia to hold adequate foreign currency reserves a year and a half into sanctions. So that move doesn’t help.
Lots of meaningless Russian “economy is great” blather snipped.
Revenues of Russian oil and gas exporters declined to $6.9 billion in July from $16.8 billion in the same period last year, according to the latest central bank data. An easing of restrictions on moving money abroad has also led to accelerated capital flight as Russians race to shift funds into foreign accounts.
“The weakening of the ruble is the result of the international screws tightening around the Russian economy, but also the cost of keeping the economy going,” said Erik Meyersson, chief emerging-market strategist at SEB AB in Stockholm. “Nobody wants to hold rubles, and the limited supply of foreign exchange from exporters weighs on the currency.”
Of course, Russia could get out of it’s self-imposed monkey trap by withdrawing its forces from all occupied Ukrainian territory. But I don’t think anyone is hold their breath for that to happen…