The Russian ruble, now near a multi-year high against major currencies like the EUR and USD, is the top-performing currency in the world so far this year, despite harsh economic sanctions imposed by the Western governments since the country invaded Ukraine. Will the ruble continue to strengthen? It’s possible…
Russia’s currency was only buying $0.0079 at its lowest level after the invasion of Ukraine and the international rounds of sanctions that followed. However, the coin has undergone an impressive reversal and has made a spectacular comeback to become the best performing coin of 2022 today.
Although the USD/RUB currency pair was hitting a multi-year high around 54 at the time of writing, some analysts expect the local currency to continue to strengthen and the currency pair to continue to fall as companies in the country will soon have to pay their taxes.
Since many Russian companies depend on exports, they receive income in USD, EUR or other currencies, which means that they have to convert foreign currencies into Russian rubles in order to pay their taxes, which will certainly support the Russian currency in the near future.
What are the reasons behind the strong recovery of the Russian currency?
Russia responded to the international sanctions by implementing a series of measures to prevent capital flight, such as strict capital controls and increases in central bank interest rates, among others, which have significantly supported the local currency.
To prevent significant withdrawals from Russian financial markets and limit further losses after the ruble’s initial decline, Russian citizens were not allowed to transfer large amounts of money abroad and banks were prohibited from selling Russian financial assets held by foreigners and not foreign. -residents.
Furthermore, Russian exporters were forced to convert 80% of their foreign exchange holdings. Russian bank accounts with foreign currency were also subject to restrictions, as the amount available for withdrawal was limited to $10,000, with the requirement to keep the rest of the balance in rubles.
The actions of the Russian central bank also supported the financial system, especially by raising interest rates to 20% in February 2022 (they have now dropped back to 9.5% according to the latest data from the Bank of Russia), which it provided incentives for the Russians to keep the rubles. in their savings accounts instead of converting them into foreign currency.
Requiring European Union countries, especially “hostile countries,” to buy natural gas from Russia in rubles, rather than USD or EUR, was another move Moscow took to preserve the value of its currency. This decision forced some countries to convert their currency to the currency of Russia in order to pay their gas bills.
Let’s also not forget that when Western nations voted and passed sanctions against Russian commodities, several countries had to continue to buy their commodities from Russia due to their high dependence on Russian products, especially energy supplies.
Because these payments were made in foreign currency, it provided a constant supply of foreign cash to the country that could have been used to prevent Russia from going bankrupt in foreign markets, or used to be able to convert foreign currencies into Rubles to avoid currency. falling even more.
What do investors expect from the Russian ruble?
Although Russia’s currency has shown an impressive turnaround, there are still many uncertainties about the future of the Russian economy and how the new global relations will affect the level of trade with Russia. Can domestic markets continue to push the Russian ruble higher? How will pessimistic growth forecasts affect the ruble’s long-term trends?
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Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.