The Russian ruble reached its lowest level against the dollar since the first weeks of the invasion of Ukraine, standing at 107 rubles per dollar. This decline follows the imposition of new US sanctions on Gazprombank, which played a key role in administering international payments for Russian gas exports.
Evolution of the Russian ruble in 2024. Source: Google Finance
Impact of sanctions and the Russian trade balance
The sanctions have exacerbated difficulties in making international payments, a significant obstacle for Russian companies, according to the country’s Central Bank. The loss of payment channels through Gazprombank could reduce gas revenues, worsening the trade balance and further weakening the ruble.
Alexander Potavin, an analyst at FG Finam, said buyers of Russian oil and gas will have to find alternative payment methods, such as accounts in other banks or using currencies other than the dollar. However, this process will take time and reflects the shortage of foreign currency in Russia.
A new “normal” for the ruble
The ruble surpassed the psychological barrier of 100 per dollar, a threshold that previously caused alarm and is now considered part of the new normal. This is due, in part, to a decline in foreign currency conversion by exporters, a measure the government relaxed this year.
With the budget deficit rising due to military spending, a weak ruble could be advantageous for Vladimir Putin’s government. About 50% of Russian budget revenues come from foreign currencies, mainly from oil and gas exports, while domestic spending is largely in rubles.
Benefits and risks of a weak ruble
Finance Minister Anton Siluanov indicated that the current exchange rate favors exports. According to experts, a depreciation of one ruble against the dollar could increase annual budget revenues by approximately 100 billion rubles. However, some economists warn that a weak ruble could keep inflation high, posing a challenge for Moscow.
Short-term outlook
With the holiday season approaching in Russia, demand for foreign currencies could increase further, putting pressure on the ruble. While authorities appear to prioritize filling state coffers, the long-term implications of this strategy, such as persistent inflation, could place additional strains on the Russian economy.
Conclusion
The fall of the ruble reflects not only the impact of international sanctions, but also a government strategy that prioritizes strengthening public finances in a context of high economic uncertainty. However, inflationary tensions and trade restrictions pose significant challenges to Russia’s economic stability in the medium term.
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