Russian Ruble Extends Rebound

The Russian ruble was at 103 per USD, loosely holding the sharp rebound from 115 per USD on January 1st, which was the lowest on record when excluding the selloff in the immediate aftermath of the Russian invasion of Ukraine.

The momentary rebound was due to the Finance Ministry deferring purchases of foreign exchange in its usual budget balance scheme, indicating that Moscow took action against the ruble’s weakness.

Still, the currency remained much weaker than its post-war average.

The ruble was halted from domestic trading against major pairs after Western nations sanctioned the Moscow Exchange, magnifying the difficulty for companies to secure hard currency and forcing the Bank of Russia to set forex prices since June.

This added to previous sanctions that halted forex inflows due to sanctions on energy.

The impact on government revenues from exports drove Moscow to relax the capital controls it had to prop up the ruble, letting it depreciate to support its budget deficit.

The Russian rouble regained strength, reaching 101.7 per USD as trading resumed after the New Year holiday, recovering slightly from earlier lows.

The currency had plunged beyond 115 per USD due to sanctions isolating Russia from global markets, cutting off access to hard currency and forcing the central bank to manage exchange rates since June.

A weakening Chinese economy, Russia's key trade partner, reduced demand for exports, worsening foreign exchange inflows.

To address revenue shortfalls from energy exports, Moscow eased capital controls, allowing the rouble to weaken and offset its budget deficit.

Political pressures also led the central bank to pause its rate hikes in December, further straining the currency.

The Russian ruble falls sharply, dropping to its lowest in more than two weeks against the U.S. dollar and the Chinese yuan. The currency has come under hefty selling pressure following recent additional U.S. sanctions. Last week, the central bank also left interest rates unchanged, against forecasts for another significant rate hike to stem rising inflation. "We'll see if the central bank or Putin enact anything to stabilize the currency further," Jefferies analyst Brad Bechtel says in a note. The ruble drops back well beyond the key 100 per U.S. dollar level, having remained just below there in recent days. The U.S. dollar rises more than 5% to 105.001 rubles, having earlier hit a high of 106.9991, according to FactSet. (jessica.fleetham@wsj.com)

The Russian ruble was at 104 per USD, holding its selloff since rebounding to the one-month high of 98 touched on December 6th, but refraining from showing any reaction to the Bank of Russia’s unexpected rate hold.

The Bank of Russia held its key rate at a record-high 21% despite flagging concerns of unsustainably high inflation expectations for consumers and businesses, surprising markets that were loosely split between hikes of 200bps and 300bps.

The muted reaction underscored the isolation of the ruble to foreign markets as sanctions on the Moscow Exchange drove the CBR to set forex prices since June.

The currency has plunged against major pairs this year as sanctions on the Russian financial sector and lower commodity demand for key trading partner China drove foreign demand for rubles to plummet.

This was magnified by Moscow’s willingness to let the ruble depreciate as a weaker currency raises export revenues for energy exporters, a key revenue source for Russia’s budget.

The Russian ruble hovered at the 105 per USD mark, weakening sharply from the one-month high of 99 touched on December 8th as sanctions that hamper the Russian financial system pressured the outlook on foreign exchange flows to Russian capital markets.

The EU backed a preliminary move to sanction Chinese firms that enable financial transactions between Russian energy companies and European utilities and gas/fuel consumers, in addition to sanctioning more Russian tankers and other energy transporters.

The move was a reaction to President Putin’s decree that facilitated the purchase of rubles by European companies through non-Western banks, which initially drove the currency to rebound from the near-three-year low of 115 following the West’s penalties on Gazprom bank.

The ruble is due to fall 11% this year, largely due to sanctions and Moscow’s willingness to weaken the currency, aiding export revenues for its war budget.

The Russian rouble held steady at 105.23 against the US dollar, recovering from a 32-month low last week after US sanctions targeted Russia's financial sector on Nov. 22.

Investors are eyeing policy signals from President Putin and top officials at a Moscow investment forum hosted by VTB, Russia’s second-largest bank.

Ahead of the event, VTB’s CEO criticized the central bank’s high-interest-rate policy, arguing it far exceeds current inflation needs.

The Finance Ministry is also set to outline forex transaction plans for December.

In response to the rouble's recent drop, driven by panic dollar-buying after sanctions hit key banks like Gazprombank, the central bank paused its foreign currency purchases last week.