How Russia concocted rebound for troubled rouble

Rising currency prices often reflect a general strengthening of a country’s economic outlook. Not so in Russia, where it is manufacturing demand for its battered rouble.

Shoppers peruse empty shelves at a supermarket in Moscow, Russia.

The rouble is in a central-bank-induced coma. While Russia’s currency can still see sharp swings in a day, it has trimmed its steep losses and begun to stabilise.

It is now trading at around 99 roubles to the US dollar, about 17 per cent weaker than it was before Russian troops invaded Ukraine but stronger than its record low of 151 on March 7, according to FactSet.

Rising currency prices often reflect a general strengthening of a country’s economic outlook. Not so in Russia. Rather, central bank moves to limit rouble selling and force rouble buying have ­effectively manufactured demand for the currency.

Russia capped the amount of dollars that residents can withdraw from foreign-currency bank accounts and barred banks from selling foreign currencies to customers for the next six months. Russian brokerages also aren’t ­allowed to let foreign clients sell securities. These measures have made it more difficult to sell the rouble, thereby limiting its losses.

Western sanctions against Russia left carve-outs for exporters of energy upon which Europe is particularly dependent, which kept dollars and euros flowing into the country. Russia ordered those exporters to sell 80 per cent of their foreign-currency revenues and buy roubles, helping the currency appreciate.

“It is fair to say that the rouble is not a market price,” said Robin Brooks, chief economist at the Institute of International Finance. “If there were a free flow in both directions, we would see a far weaker rouble.”

Russian President Vladimir Putin recently said he wanted ­European nations to begin buying Russian gas with roubles rather than dollars and euros.

That would reverse the current flow of money, making sanctioning ­nations support Russia’s currency and ensuring that all funds from energy sales support its value, said Christian Kopf, head of fixed ­income at asset manager Union Investment. Such a move is unlikely, but signals Russia’s desire to boost demand for the rouble.

The rouble is now trading at around 99 roubles to the US dollar, about 17 per cent weaker than it was before Russian troops invaded Ukraine.

Currencies often move with the ups and downs of a country’s economy. Investors want to put money into economies they think will thrive, buying stocks and bonds denominated in that country’s tender.

It is harder to take such insights from the rouble. Hundreds of companies have announced a withdrawal from Russia, meaning imports are likely to contract. At the same time, Russia is continuing to sell its oil, meaning exports and money gained from those will more than make up for the money necessary for imports. Oil prices above $US100 a barrel are also adding a boost to revenue, even as Moscow’s inventories trade at a discount. The imbalance could strengthen the rouble, though it doesn’t make Russia’s economy any stronger.

“There’s so much stuff you’re not allowed to buy or sell,” said George Pearkes, a macro strategist at Bespoke Investment Group. “The rouble could strengthen a lot from here, and it wouldn’t mean anything.”

After the war broke out, the rouble market split to have one value within Russia and another on international markets. In onshore trading, the currency was valued at 94 roubles to the dollar on Monday while it traded at 98 in international markets. That gap has narrowed from early March.

The Wall Street Journal