The Kremlin called for calm as the ruble fell below the psychologically important RUB100 to the dollar mark for the second time this year on October 3.
The Central Bank of Russia (CBR) of was forced to put in an emergency 350bp rate hike on August 15 after markets started to panic, fearing a ruble meltdown after it crossed the psychologically important mark. The CBR followed up with a second large 100bp hike in September. (chart)
After initially recovering following the two rate hikes, the currency has begun to weaken again in recent weeks, although the reaction to this week’s fall to under RUB100 to the dollar has been nowhere near as extreme as the reaction in August.
"There is still no cause for concern," Kremlin spokesman Dmitry Peskov told reporters. "Macroeconomic stability is fully ensured by the actions of the macro regulator and the government, so there are no grounds for concern here."
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The weakening of the rouble is attributed to foreign currency outflows, prompting concerns about its stability. As bne IntelliNews reported, while oil exports have been rising and the price of oil is up to over $90, both supportive of the ruble, Russia continues to bleed money through capital flight that is undermining the value of the currency.
As a result of the problem of capital fleeing the country a debate has begun amongst the economic management elite. The Ministry of Finance (MinFin) favours introducing more capital controls to prevent money going overseas, whereas the CBR prefers to use monetary policy tools to prevent capital flight, arguing that capital controls are ineffective as Russian businessmen are too adept at avoiding them.
Presidential advisor Maxim Oreshkin criticised the central bank in an opinion piece published the same day the ruble slid to RUB101.75 per dollar in August, blaming the decline on the regulator’s loose policy, in a rare public show of dissent amongst the economic management team.
Despite stringent capital controls being imposed immediately after the start of the Ukraine war a record $253bn left the country in 2022, or 13% of GDP. This year some $27bn has left the country year to date, according to the CBR.
After briefly breaking through the RUB100 barrier in the morning of October 3, the currency strengthened by 0.6% against the dollar to RUB99.17, after briefly hitting 100.2550, marking a more than seven-week low, Reuters reports. It also gained 1% against the euro, trading at RUB104.91, and showed a 0.5% increase against the yuan, reaching RUB13.53.
The dip in the Russian ruble coincided with a decline in Brent crude oil, which fell by 0.8% to $90.01 a barrel, reaching its weakest point in nearly a month, although it remains well above its 2023 average.
The Russian currency often faces pressure at the start of each month, as it loses the support of a favourable month-end tax period when exporters typically convert foreign exchange revenues to meet local liabilities.
Promsvyazbank analysts said that while expensive oil and an increase in the key interest rate are improving the outlook for the ruble in the medium term, they expect a short-lived move beyond RUB100 against the dollar unless new support measures are introduced by the authorities.
Analysts expect further tightening of monetary policy at the next scheduled meeting on October 27, as the central bank is also grappling with persistent inflationary pressure in addition to currency weakness.
In September the Ministry of Economic Development, hiked its forecast for the average annual ruble rate to RUB85.2 per dollar in 2023, up from the April forecast of RUB76.5, and to RUB90.1 per dollar in 2024, up from the April forecast of RUB76.8 roubles. It sees the average annual rouble rate at RUB92.3 against the dollar in 2026, up from the April forecast of RUB78.8 roubles.