The Forex Market in Russia is in the center of attention following the decision of the Central Bank to suspend its currency purchases until the end of 2024.
This measure seeks to reduce volatility in financial markets, after the ruble plummeted to 113.15 per dollar, its lowest level since March 2022. In an effort to contain the situation, the bank will also increase yuan sales to 8.4 billion rubles daily.
Evolution of the Russian Ruble in Wednesday’s session. Source: Google Finance
The impact of sanctions and the overloaded economy
The weakening of the ruble is linked to sanctions imposed on Gazprombank, a key channel for Russian energy trade. According to Dmitry Pyanov, deputy executive director of VTB, these restrictions have made it difficult for foreign currency to enter the market.
Added to this is an economy that shows signs of overheating: real wages grew by 8.4% in September, unemployment fell to a historic low of 2.3% and weekly inflation reached almost 0.4%, despite an interest rate of 21%.
Forex trading adjustments
The Russian Ministry of Finance has also adjusted its operations in the Forex Market, reducing purchases of foreign currencies from the National Wealth Fund.
These operations, carried out through the Central Bank, aim to compensate for the drop in income from oil and gas exports. However, analysts warn that these measures will not be enough to return the exchange rate to previous levels.
Volatility and future prospects
The volatility of the ruble not only affects the exchange rate, but also the stock market, with a cumulative drop of more than 20% in the MOEX index this year. Despite the government’s efforts, analysts predict that volatility will continue due to factors such as sanctions, the global strength of the dollar and limited access to international markets.
Economist Evgeny Kogan warns that measures such as increasing foreign exchange sales requirements for exporters could have limited impact if sanctions prevent transactions.
Furthermore, the Central Bank estimates that a 10% drop in the value of the ruble increases inflation by 0.5 percentage points, aggravating pressure on prices.
The challenge of international trade
Despite the growing preference for trading in rubles and currencies of “friendly” countries, dependence on opaque markets and the transfer of operations in dollars and euros to the over-the-counter market have added uncertainty. This reinforces the need for effective strategies in the Forex Market to stabilize the currency and protect the Russian economy.
The path to ruble stability will depend on the authorities’ ability to balance inflationary pressures, maintain confidence in financial markets and adapt to an environment of unprecedented sanctions and trade restrictions.
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