The Central Bank of Russia has taken dramatic steps to intervene in the market in recent weeks, introducing policies to prevent investors and companies from selling the currency and other measures to force them to buy.
What did Moscow do to strengthen the ruble?
- The central bank has more than doubled interest rates to 20%. That encourages Russian savers to keep their money in local currency.
- Exporters have been ordered to convert 80% of their foreign exchange earnings into rubles instead of holding US dollars or euros.
- Russian brokers have been banned from selling securities owned by foreigners.
- Residents are not allowed to make bank transfers outside of Russia.
- Russia has threatened to demand payment for natural gas in rubles, not euros or dollars.
These measures have allowed Moscow to artificially create demand for the ruble. Politicians are faced with the problem that given Russia’s ailing economy, nobody wants to buy the currency themselves. When the restrictions are lifted, the demand for the ruble will fall and its value will fall – perhaps dramatically.
The same applies to the Russian stock market. The benchmark MOEX index was trending higher as trading resumed a week ago after a long war-forced hiatus, but analysts say it’s due to restrictions on investors, including a ban on short selling. When the market reopened, only 33 shares were allowed to trade. As trading expanded to all stocks this week, the index fell again.
Against this background, the recovery of the ruble and the movements on the stock markets should not be taken as a signal that the Russian economy is on the mend. The country is facing its deepest recession since the 1990s, and the economy will shrink by a fifth this year, according to a recent forecast by S&P Global Market Intelligence.