FX.co ★ Capital Controls Maintain Ruble Strength

The Russian ruble is currently trading at 81.2 per USD, maintaining its stability since achieving two-year highs in the second quarter. This steadiness is attributed to stringent capital controls and elevated interest rates, which have mitigated the adverse effects of new sanctions and a bleak economic forecast for Russia. The United States has imposed sanctions on Lukoil and Rosneft, adding pressure to Russia’s energy export prospects with India, a significant consumer of Russian oil following the 2022 invasion of Ukraine. Furthermore, the European Union has committed to ceasing imports of Russian LNG by 2027. Despite these challenges, the impact on the ruble has been minimal. This is due in part to Kremlin directives requiring export-oriented companies to convert 40% of their foreign exchange earnings. Additionally, the Bank of Russia has indicated it will maintain a restrictive monetary policy into the following year to curb inflation, despite implementing an unexpected 50 basis points interest rate cut. The cumulative effects of Western sanctions, government expenditure focused on the conflict in Ukraine, and high borrowing costs have led the International Monetary Fund to project a mere 0.6% GDP growth for Russia this year.