The Russian Ruble’s recent moves have hit the financial headlines, after wild swings, interest rate increases and market intervention. The value of the Ruble has moved dramatically this week, being deemed “untradeable” by some analysts. USDRUB trade to 80 Rubles to the US Dollar on Tuesday, currently the pair is trading around 62 Rubles to the USD.
The rapid depreciation was meant to be curbed by a bold move by the central bank, a 650bps increase in interest rates, however this stemmed the move for a matter of hours. The Ruble went it to freefall, as liquidity disappeared with the currency looking to be in freefall.
The Russian economy is currently under some stress due to western sanctions; however the main implication is the decline in the price of crude. The heavy reliance on the commodity has put Putin under pressure as the price has collapsed, with price floor for oil unknown. Russian relies on the revenue from Oil, and growth from the aligned industries, the fall in the price is likely to push the economy into recession.
What are Russia options?
The Russian central bank has spent an estimated $85bn of its reserves propping up the Ruble so far this year, it is believed the bank has accrued around $450bn. Using these finite reserves could be a last attempt to save the currency.
Gold reserves; would be unlikely, as the country has been growing these over the last few years. Though they could be used as collateral for currency swaps or USD denominated loans, enabling the central bank to intervene in the FX market.
Capital restrictions; this is a highlighted cited next step, however this would crush the domestic credibility of the government, as it has attempted to restore confidence following the 1998 episode.
Reduce oil production; this could contribute to a solution, but cutting output, OPEC might follow, which would stabilise Crude prices and strengthen the Ruble. In the short term this would hurt, as the USD revenue received would be reduced.
The move in USDRUB, was felt across emerging market currencies (EMFX). At current USDRUB and EURRUB are untradeable with Abshire-Smith due to limited liquidity from providers. Similar moves have been seen in other EMFX pairs and have been cited as an imperfect proxy for the Ruble.
Brent Crude Feb: 62.69/barrel
US Crude Feb: 57.89/barrel