The Russian Rouble Strengthens as Putin Reintroduces Currency Controls
Russian Rouble Soars After Currency Controls Announcement
The Russian rouble experienced a significant surge of over 3% on Thursday, reaching a two-week high of over 96 against the dollar. This increase came after President Vladimir Putin issued an order for mandatory foreign currency sales by certain exporters, aimed at bolstering the Russian currency.
Rouble’s Volatility and Recovery
Following Russia’s invasion of Ukraine last year, the rouble plummeted to a record low. However, the implementation of capital controls led to a recovery, with the currency reaching a seven-year high. Despite this, the rouble has been on a downward trajectory this year due to capital outflows, declining exports, and rising imports.
Rouble’s Current Strength and Future Predictions
As of 0720 GMT, the rouble had gained 3.4% against the dollar, trading at 96.79. It also saw a 3.3% increase against the euro and the yuan. Yevgeny Kogan, a professor at Russia’s Higher School of Economics, predicts further strengthening of the rouble, with a projected rate of 88-92 per dollar by the end of the year. However, he cautions that businesses should prepare for a rate of 100-105 by 2025-2026.
Putin’s Decree on Capital Controls
The government recently announced that President Putin had signed a decree reintroducing capital controls for select exporting companies. This measure was anticipated after the rouble dipped below 100 against the dollar in August. The new controls will be in effect for six months and require companies to submit plans to the Bank of Russia and Rosfinmonitoring, Russia’s financial monitoring agency.
Objectives of the New Measures
The primary aim of these measures is to enhance transparency and predictability in the foreign exchange market while reducing opportunities for currency speculation. First Deputy Prime Minister Andrei Belousov emphasizes that the restrictions will have a targeted impact, leaving the majority of foreign trade participants unaffected.
Expert Opinions and Concerns
Dmitry Polevoy, head of investment at Locko-Invest, highlights that the success of these controls depends on their implementation and effectiveness. While the involvement of Rosfinmonitoring provides some reassurance, Polevoy acknowledges the ongoing challenge of capital outflows. Additionally, the price of Brent crude, a key benchmark for Russia’s main export, saw a 0.3% increase, reaching $86.11 per barrel.
Overall, the reintroduction of currency controls by President Putin has sparked optimism for the Russian rouble’s stability and future growth. However, the success of these measures will ultimately depend on their execution and impact on capital outflows.