How does Russia do this? Ruble continues to rise despite new sanctions
04/07/2022 13:14
One package of sanctions after another rains down on Russia, but the ruble exchange rate continues to rise. Now it’s really back to pre-war levels. The reasons are probably high interest rates – and also Germany’s energy imports.
On the foreign exchange market, the ruble rose despite a planned new package of EU sanctions. The Russian currency thus continued the recovery of the course of recent weeks. In the morning, 79 rubles were paid for one US dollar. The exchange rate is approximately at the level it was at 78 rubles just before the outbreak of the war in Ukraine. Analysts refer to the Russian central bank’s high interest rate, tight capital controls and trade surpluses due to still possible energy exports, which Germany also continues to buy.
After the start of the war in Ukraine on February 24, the ruble exchange rate collapsed, sometimes even 177 rubles were paid for one dollar. In recent weeks, however, the price has quickly recovered. With the sanctions imposed by Western industrialized countries on the Russian central bank, the ruble is no longer considered a freely tradable currency. In the foreign exchange market, however, the currency is traded with restrictions, which allows for a ruble exchange rate.
High interest rates in Russia
Commerzbank foreign exchange expert Tatha Ghose sees a reason for the ruble’s rally in Russia’s high interest rates. The country’s central bank doubled the benchmark interest rate to 20 percent at the end of February. In addition, the Commerzbank expert referred to strict capital controls. The central bank limited foreign exchange exports. Furthermore, oligarchs and sanctioned corporations cannot transfer money from Russia to foreign bank accounts.
Analysts also refer to the Russian trade balance. “The trade balance should improve after the sanctions,” Ghose said. Because while the export of Russian energy such as oil or gas is still possible, the import of Western goods has been severely restricted by sanctions.