(Bloomberg) — The strengthening of the ruble is not only propelling it toward its strongest position since July but also playing a crucial role in Russia’s overall economic puzzle as Vladimir Putin gears up for another presidential campaign.
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Since early October, the ruble has experienced a major turnaround, reaching around 90 per dollar, which is close to the average forecasted by the Economy Ministry for next year. This recent surge has also helped to curb inflation, leading to the expectation of a slowdown in price growth after peaking in September.
The exchange rate has now become a key indicator of the economy’s well-being, particularly in the face of international sanctions and Russia’s ongoing conflict with Ukraine. It has also become a significant factor in the country’s military expenditures, with more money allocated to defense than any other area of the budget.
Despite initial setbacks caused by declining export revenues and high government spending, the ruble has managed to make a comeback, bolstered by capital controls on major exporters and crude prices hovering around $80 per barrel. As a result, the ruble has seen a more than 4% gain against the US dollar just this month.
The challenge now lies in finding the right balance for the ruble’s value to combat inflation without negatively impacting government revenues. According to the Economy Ministry’s projections, the Russian currency is expected to stabilize around 90-92 per dollar in mid-2024.
However, market expectations vary, with some experts predicting the ruble to continue strengthening before slipping back to the 90-95 range early next year due to external pressures and geopolitical uncertainties.
Barclays Plc, for example, anticipates a ruble value of 90 per dollar for the next quarter and the following six months, citing policy rate hikes and rising oil prices as factors that could help stabilize the currency.
Despite its recent gains, the ruble remains down by about 17% against the dollar this year, causing some experts to remain cautious about its future trajectory.
“Will the ruble be able to go there and strengthen? We are still cautious,” said Sofya Donets, an economist at Renaissance Capital in Moscow. “At the end of the year, we believe there will be 90 rubles per dollar due to ongoing capital outflows.”
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