The value of the Russian ruble plummeted 30% after the US, European Union and Britain imposed the first sanctions in response to the nation’s war on Ukraine. That slump – which took the ruble to less than 1 cent against the US dollar in early March – prompted President Biden to deride the currency as “rubble” last month.
But the ruble has recovered, nearly doubling in value since its March 7 bottom. The recent gains mean the currency is now back to levels it was before sanctions were imposed by the US and other nations.
Reasons behind the rebound include support from the Russian government as well as ongoing purchases of Russian energy from the European Union and other nations, Jane Foley, Rabobank London’s head of FX strategy, told CBS News. Despite the broad-based sanctions, Russia continues to export oil, gas and coal, with Bloomberg Economics estimating that the country’s energy exports will rise by a third to $321 billion this year.
President Vladimir Putin has also introduced “massive capital controls” to stabilize the ruble and strengthen the currency, Foley noted.
“This stability of the Russian ruble is proving beneficial for the economy,” she said. “Russians are putting money back into their own banks. That helps prop up the Russian ruble.”
Despite the ruble’s recent rebound, international efforts to isolate Russia are taking a heavy toll on its economy. The nation’s gross domestic product will contract by 15% this year, the Institute of International Finance recently predicted. To put this in perspective, US GDP fell 3.5% in 2020 as the pandemic caused much of the country’s economy to shut down.
“Russia has not experienced a recession of this magnitude since the 1990s,” Elina Ribakova, deputy chief economist at the IIF, said in a report. “This is an unprecedented shock to the Russian economy.”
Russia has banned foreigners from selling assets they own in the country. This has prevented some western companies that have ceased operations in Russia from selling their real estate, factories or other assets in Russia.
“There are 400 companies that have said they want to pull out of Russia and sell assets but can’t,” Foley said.
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Russia has also said that “unfriendly” nations must pay for energy exports in rubles, a measure created to prop up the currency. However, the edict may not have much of an impact, according to a new analysis by the Federal Reserve Bank of St. Louis.
The bigger problem is Europe’s dependence on Russian energy, Foley said. While the EU has agreed to a ban on Russian coal, it has yet to agree on a comprehensive embargo on oil and natural gas that would hit the Russian economy harder. This is mainly because a ban on Russian energy imports could trigger a recession in Europe.
Meanwhile, Europe’s continued imports of Russian energy “bring in Russia quite a lot of rubles… and that means they’re able to soften the blow to the economy,” she said.
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