ruble hits lowest level in almost a year

The ruble reached its lowest level against the dollar in almost a year on Tuesday, weighed down by the slowdown in the Russian economy and the drop in purchases of rubles. Around 6:20 p.m. GMT, the Russian currency fell by 0.77%, to 96.82 rubles per dollar. Earlier, it fell to 96.90 rubles, its lowest level since October 2023.

“Growth has slowed and, in many sectors, has more or less stopped”analyzed with AFP Iikka Korhonen, head of research at Bofit, an institute affiliated with the central bank of Finland.

Foreign investment down

The Russian trade balance has deteriorated in recent months and foreign investments in Russia are declining, a situation due in particular to the sanctions put in place by the international community against the country. Since the beginning of the invasion of Ukraine, “there has been very little foreign investment”apart “some Chinese projects”noted Mr. Korhonen, Beijing having become Moscow’s main trading partner.

Russia is also experiencing a high inflation rate, the rise in prices being driven by the surge in public spending aimed at supporting the offensive in Ukraine, reducing the purchasing power of residents. Price increases reached 9.05% year-on-year in Russia in August, according to official figures, a very slight slowdown compared to July when inflation rose to 9.13%, its highest level since February. 2023.

To curb inflation, the Central Bank of Russia (BCR) raised its key rate to 19% in mid-September. The key rate had already been raised at the end of July from 16% to 18%. The BCR “raises its interest rates and most other central banks lower them, which should support the ruble, but it does not work”commented Mr. Korhonen.

Fall in the price of oil

Furthermore, major Russian exporters have reduced their purchases of rubles on the market by 30% compared to August, according to the BCR. These companies are generally paid in foreign currencies and then convert their export proceeds into rubles.

“This is a plausible explanation for the pressure on the ruble in September”underlined Tatiana Orlova of Oxford Economics. According to this expert, revenues have notably fallen “because the price of Russian oil fell along with world prices” mi-september. “Their export earnings were also affected by the decline in oil production, which as of September was almost in line with Russia’s commitment to OPEC+”she adds, in reference to the Organization of the Petroleum Exporting Countries (OPEC) and its allies in the OPEC+ agreement.