Russia’s central bank has taken dramatic steps in recent weeks to intervene in the market, implementing policies to prevent investors and companies from selling the currency and other measures that force them to buy it. What has Moscow done to strengthen the ruble?
The central bank has more than doubled interest rates to 20%. This encourages Russian savers to keep their money in local currency. Exporters have been instructed to exchange 80% of their foreign exchange earnings for rubles instead of US dollars or euros. Russian stockbrokers have been banned from selling securities held by foreigners. Residents are not allowed to make bank transfers outside Russia. Russia has threatened to demand payment for gas in rubles, not euros or dollars.
These measures allowed Moscow to artificially create demand for the ruble. The problem facing policymakers is that with the Russian economy in a state of disarray, no one really wants to buy the currency on their own. When the restrictions are lifted, demand for the ruble will fall and its value will fall – perhaps dramatically.
The same goes for the Russian stock market. The MOEX benchmark rose when trading resumed a week ago after a long hiatus due to the war, but analysts say this is due to restrictions on investors, including a ban on short selling. Only 33 shares were allowed to trade when the market reopened. When trading extended to all stocks this week, the index fell again. With this in mind, the recovery of the ruble and the movements in the stock market should not be taken as an indication that the Russian economy is recovering. 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.
