Russia's Ruble Soars to Highest in 7 Years Despite Half-Rate Cut... Up 35% This Year

Exchange Rate Surges Beyond Appropriate Level... Export Competitiveness Deteriorates
Unable to Control Exchange Rate Despite Additional Interest Rate Cut on the 10th

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Despite the Russian government's rapid interest rate cut policy, the exchange rate of the Russian legal currency, the ruble, soared, reaching its highest level since 2015. Immediately after the invasion of Ukraine, the Russian government implemented various exchange rate defense policies, but the ruble exchange rate failed to stabilize and instead surged, raising concerns about a decline in export competitiveness.

According to Bloomberg News on the 20th (local time), the ruble rose an additional 1.7% from the previous session to 55.44 rubles per dollar, marking the highest level since July 2015. The ruble plummeted to around 120 rubles per dollar immediately after Russia's invasion of Ukraine but began to rebound following various exchange rate defense policies by the Russian government. It has surged about 35% in the international foreign exchange market this year.

Bloomberg News reports that the Russian government is now more concerned about the weakening of export competitiveness than defending the exchange rate. According to Russia's TASS News Agency, Denis Manturov, Minister of Industry and Trade, stated at a press conference, "The breakeven point for steel companies to set efficient export prices is 70 rubles per dollar," adding, "If it falls below that, losses will occur."

At the beginning of the war, the Russian government strongly controlled finance by defending the ruble exchange rate through measures such as requiring payment for oil and natural gas in rubles, banning foreign currency outflows, and raising interest rates. At the end of February, shortly after the outbreak, the Russian Central Bank doubled the benchmark interest rate from 9.5% to 20% in one go.

However, it is now continuously cutting interest rates to lower the exchange rate. Since April, the Russian Central Bank has implemented a rapid rate-cutting policy, lowering the benchmark interest rate by more than 10% in just two months after an initial 3 percentage point cut. On the 10th, it further reduced the benchmark rate from 11% to 9.5%, but Bloomberg News points out that it has failed to prevent the ruble's surge.

The unexpected ruble surge is primarily attributed to a shortage of foreign currencies such as the dollar and the continued control of foreign currency outflows by Russian financial authorities. Bloomberg News noted, "The Russian government still imposes restrictions on dollar transactions, and with ongoing sanctions against Russia, demand for dollars has weakened." In this situation, energy prices such as oil and natural gas have surged sharply, and receiving major energy export payments in rubles is believed to be driving the continued surge.

This content was produced with the assistance of AI translation services.