Ruble at 16-month low due to FX demand pressure.

Ruble at 16-month low due to FX demand pressure.

The Rouble’s Slide: Russia’s Economic Challenges and Currency Depreciation

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Aug 9 (ANBLE) – The rouble, Russia’s currency, hit a more than 16-month low on Wednesday, facing strong foreign currency demand and limited supply. Additionally, Russia’s shrinking trade surplus and widening budget deficit have also hurt market sentiment.

By 1023 GMT, the rouble weakened 0.2% against the dollar, landing at 97.32. Its weakness was further highlighted as it hit 97.48, its lowest point since March 25, 2022. The rouble also experienced a 0.14 loss against the euro, trading at 106.84, and a 0.3% depreciation against the yuan, reaching 13.46.

“The limited supply of foreign currency from exporters continues to exert pressure on rouble positions, due to both problems with repatriating funds and reduced export supplies in the face of steady demand among importers,” explained Promsvyazbank analyst Egor Zhilnikov. Foreign currency repatriation issues hinder exporters from contributing to the supply, leading to a shortfall.

The rouble’s slump has accelerated in August, with a nearly 6% decline against the dollar alone. This is largely due to the absence of support from a month-end tax period, where exporting firms typically convert their foreign exchange revenue to meet local liabilities.

Throughout the year, the rouble has faced continuous pressure caused by Russia’s dwindling balance of trade. As export revenues decrease and imports rebound, the currency has fallen by approximately 28% year-to-date against the dollar, dropping from levels near 70.

Since an unsuccessful armed mutiny in late June, the rouble has depreciated by almost 13%, further eroding its value. Alexey Antonov of Alor Broker predicts that if the dollar-rouble pair reaches the 100 mark, Russia’s monetary authorities may take steps to curb further devaluation, possibly leading exporting firms to increase sales of their foreign exchange earnings.

The depreciation of the rouble has implications beyond the currency market. Yields on Russia’s benchmark 10-year OFZ bond have risen to their highest level since April 2022, reaching 11.66%, well above Russia’s key rate of 8.5%. Antonov attributes the drop in bond prices, which move inversely to their yields, to the weakening rouble.

On Tuesday, Russia’s finance ministry announced that the country’s budget deficit had widened to around $29 billion from January to July. To address this, the ministry will conduct two OFZ bond auctions later on Wednesday.

Although the rouble faces significant challenges, there are some positive indicators. Brent crude oil, a global benchmark for Russia’s main export, showed a 0.7% increase, trading at $86.80 per barrel. Russian stock indexes remained relatively stable through the currency fluctuations. The dollar-denominated RTS index remained unchanged at 1,000.1 points, while the rouble-based MOEX Russian index saw a 0.1% increase, reaching 3,089.1 points.

In conclusion, Russia’s currency, the rouble, is currently facing multiple economic challenges, leading to its depreciation against major currencies. The limited supply of foreign currency from exporters and the country’s shrinking trade surplus are key factors contributing to this trend. However, there are hopes that monetary authorities will take measures to stabilize the situation and that exporters will increase their foreign exchange earnings in response. Russia’s government is also addressing the widening budget deficit through OFZ bond auctions. Despite the rouble’s decline, there are positive signs in the oil market and relative stability in Russian stock indexes. These factors will play a crucial role in shaping the future trajectory of the rouble and Russia’s overall economic outlook.