Russian Ruble Stabilizes After Central Bank’s Currency Purchase Halt Amid Declining Value

The ruble has improved slightly after the central bank halted foreign currency purchases for the rest of the year. However, it remains weak, trading at about 108 rubles to the U.S. dollar, which is better than Wednesday’s rate of 114 but still indicates that one ruble is worth less than a penny.

Since November 21, the ruble has dropped 9% against the dollar, largely due to U.S. sanctions on approximately 50 Russian banks, including Gazprombank. Overall, the ruble has fallen about 20% against the dollar this year.

A weaker ruble could make Russian exports cheaper, but it would also increase import costs, fueling inflation. Western countries have reduced trade with Russia, but imports from China have increased. The ruble has also devalued against the yuan.

Russian businesses and banks faced a shortage of yuan over the summer, which is essential for transactions in Russia. The National Wealth Fund, used to support the ruble, has been depleted, dropping from $140 billion before the Ukraine invasion to $55 billion last month.

Russia can still earn foreign currency from oil and gas sales, but a diminishing sovereign wealth fund leaves it vulnerable to falling energy prices due to decreasing global demand.

The central bank could raise interest rates further to combat inflation, but rates are already high at 21%, which risks tightening the economy even more. The central bank announced no immediate emergency measures are needed to stabilize the ruble, despite President Putin’s reassurances.

Analysts suggest that the Russian economy may struggle to sustain the war in Ukraine beyond next year. Russian factories cannot produce enough critical weaponry to replace losses in the field, and their stockpiles are dwindling.