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Economy of errors Why the ruble is crashing — and what Russia’s Central Bank is doing to stop it

Source: Meduza

On November 27, the U.S. dollar nearly hit 115 rubles on the Forex market, while the euro climbed above 120 rubles. Official rates from Russia’s Central Bank painted a milder picture — 108 and 113 rubles, respectively — but sanctions have made it nearly impossible to gauge the true state of the Russian currency. While economists may differ on the specifics, they agree on three points: the ruble is in steep decline, the situation is unprecedented, and there’s an urgent need for government intervention. Meduza examines how the ruble lost nine percent of its value in a single day and whether the Central Bank can regain control.

How much the U.S. dollar is actually worth depends on where you’re buying it. With no official trading of “unfriendly” currencies in Russia, Wednesday’s market panic had media outlets looking to the foreign exchange market (Forex), where rates were the highest. However, market analysts don’t trust these rates much because not everyone can trade on foreign platforms, and it’s unclear who’s buying and selling the currency. Economist Sergey Romanchuk writes that these figures likely don’t reflect “real trading activity.”

Sofia Donets, the chief economist at Tinkoff Investments, shares this view. She considers the yuan’s exchange rate — the only major currency still traded on the Moscow Exchange — the most reliable reference point for estimating the dollar’s value against the ruble. On Wednesday, the yuan rose to 15 rubles, reaching levels last seen in March 2022, before stabilizing thanks to a “mysterious seller.” Using the yuan to calculate the dollar’s value puts it at around 108 rubles, matching the Central Bank’s official rate.

However, the Central Bank uses a different method to determine the exchange rate, relying on data from over-the-counter trades where Russian banks, brokers, asset managers, and other financial institutions trade currencies directly. On Wednesday, this market’s dynamics mirrored Forex: the dollar surged to 114 rubles, and the euro climbed to 120. But trust in these rates is also limited, as the Central Bank stopped disclosing trading volumes back in the summer.

Another alternative is the dollar/ruble futures rate, based on which the dollar peaked at 110 rubles on Wednesday before dropping to 106. And the most accessible (though not the most objective) rates are in exchange offices, where banks in Moscow are selling cash dollars for anywhere between 108 and 115 rubles.

How did we get here?

Just a week ago, the dollar was trading at 100 rubles. As recently as October, experts were confident a collapse was unlikely, predicting the dollar would stabilize around 94.5 rubles. But the situation has changed dramatically: the monthly foreign currency deficit is now estimated at $2–4 billion, and in some ways, a “perfect storm” has begun.

For one, exporters have been selling less foreign currency on the domestic market, a trend often linked to a government decree that loosened regulations, reducing the share of revenue they’re required to repatriate and sell to 25 percent. Some analysts, however, argue that the real cause of the reduction wasn’t the decree but rather sanctions, which have made it impossible for exporters to sell more foreign currency. Economist Dmitry Polevoy cautions that reinstating stricter requirements might do little to stabilize the exchange rate and could instead harm businesses.

At the same time, oil prices have dropped. Earlier in the fall, a barrel of Brent crude oil was trading at $80 amid escalating conflict in the Middle East. Now, with a tentative Israel-Hezbollah ceasefire and Donald Trump’s U.S. presidential election victory — he has pledged to ramp up oil production, potentially driving prices further down — Brent has fallen to $73 per barrel.

Seasonal demand for imports could also be playing a role. In early fall, businesses were preparing for sales events like Black Friday, and now they’re stocking up on goods for the holiday season, driving up the need for foreign currency, points out BCS Express. This coincides with a rise in government spending, which typically ramps up at the end of the year, notes Sovcombank’s chief economist, Mikhail Vasilyev. A portion of this spending is directed toward imports for state-owned companies, further straining the foreign currency market.

Adding to the pressure, the U.S. has imposed sweeping new sanctions, targeting more than 50 banks, including Gazprombank. Until now, Gazprombank had access to the SWIFT system and was a key source of foreign currency as it processed payments for Russian energy exports. Dmitry Pyanov, a top executive at VTB, stressed that creating alternative currency flows “must be a top priority for regulators,” though economist Egor Susin estimates that establishing such flows could take up to two months.

Meanwhile, Economic Development Minister Maksim Reshetnikov offered his own explanation, arguing that the ruble’s collapse isn’t due to weaknesses in the currency itself but rather to the dollar’s strength, which he said has “risen against all global currencies” following Donald Trump’s victory in the U.S. presidential election. Reshetnikov also points to growing “concerns among foreign trade participants” over the latest round of sanctions.

The view that the ruble’s movements “don’t reflect fundamental factors,” as Egor Susin put it, has gained traction, as the ruble has weakened despite conditions that would typically support it. The monthly tax period, for example, usually bolsters the ruble as exporters sell larger amounts of foreign currency to meet their tax obligations. Although November’s tax payments were smaller than October’s, market analysts still expected some positive impact, which didn’t materialize.

Similarly, a high key interest rate should, in theory, make saving in rubles more attractive, as deposit accounts offer better returns. Central Bank data shows that in September and October, Russians actively sold foreign currency for this reason. High borrowing costs should also curb imports, which are often financed through loans. Alexander Isakov, the head Russia specialist at Bloomberg Economics, maintains that the key rate continues to positively influence the ruble and suggests the recent weakening could justify further tightening of monetary policy in December.

Finally, while oil prices have dropped, they aren’t low. Russia’s 2024 budget is based on a projected price of $71 per barrel for Russia’s Urals blend. Although Urals trades at a discount to Brent, the Finance Ministry still considers even a drop to $60 per barrel a favorable scenario.

Will the Kremlin intervene?

Whatever the underlying causes, with the ruble behaving this unpredictably, the government has already stepped in. Russia’s Central Bank announced that, as part of fiscal tightening measures, it would stop purchasing foreign currency for the Finance Ministry.

The Central Bank’s actions in the open market are currently guided by two main factors. First, the Central Bank sells 8.4 billion rubles’ ($77.8 million) worth of yuan every day, a measure introduced in 2023, when the dollar also rose above 100 rubles. The reasoning is straightforward: after Russia launched its full-scale war against Ukraine, the Finance Ministry started spending heavily from the National Wealth Fund, exceeding established limits. Some of this money went to projects like construction, which increased demand for imported materials and weakened the ruble. To counter this, the Central Bank committed to selling an equivalent amount of yuan to match the ministry’s spending. Dividing this evenly across trading days resulted in daily sales of 8.4 billion rubles.

Second, in November, the government tasked the Central Bank with buying 4.2 billion rubles’ ($38.9 billion) worth of foreign currency daily, to replenish the National Wealth Fund. This amount is subtracted from the 8.4 billion rubles of daily yuan sales, meaning only a limited supply of yuan enters the market.

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The Central Bank has promised to compensate the Finance Ministry for the shortfall next year, but for now, the market is benefiting from doubled support from the regulator. This move was described as a logical first step even before the Central Bank’s announcement, but market analysts still have doubts about its effectiveness.

Criticizing the decision as over due, economist Dmitry Polevoy notes that calls for intervention came a week before the dollar nearly hit 115 rubles. He also points out that 8 billion rubles accounts for only about 10 percent of the Moscow Exchange’s daily yuan trading volume. “On their own, these sales don’t seem large enough to fully meet market demand,” Polevoy says, viewing the move more as a symbolic display of the Central Bank’s resolve. Sovcombank’s Mikhail Vasilyev agrees, describing the measure as “moderate” and unlikely to reverse the ruble’s decline. “This clearly isn’t the last step that will be needed,” adds economist Egor Susin.

The authorities still have other tools at their disposal, including tightening mandatory foreign currency sales for exporters, restricting capital outflows (even in rubles), or enacting an emergency key interest rate hike. The Telegram channel Faridaily notes that in the past, episodes of ruble weakening were also met with “verbal interventions,” where the government or Central Bank reassured investors that there was no need to panic and that the ruble would soon stabilize. This time, however, no such reassurances have been made.

What happens next?

The ruble’s collapse took economists by surprise, shaking confidence in their forecasts. Now, opinions on the ruble’s future are all over the map. Some economists remain optimistic about a recovery: Dmitry Polevoy predicts that a stable range for 2025 will likely fall between 95 and 105 rubles per dollar, rather than exceeding 110. Sergey Romanchuk agrees, claiming the dollar’s upward trend has “run its course” and forecasting a return to 100 rubles soon.

Others are less hopeful. Alexander Isakov of Bloomberg Economics says the ruble could “stabilize near current levels” over the next two to three months but doubts it will return to levels seen before this week’s collapse. Mikhail Vasilyev sees 100 to 110 rubles per dollar as the “new normal,” while Finam analyst Alexander Potavin predicts a return to the highs of March 2022, when the dollar hit 121 rubles, calling it a question of “when,” not “if.”

Kremlin spokesman Dmitry Peskov, however, appears unfazed by the ruble’s decline. When a Russian reporter asked about the sudden drop, he quipped, “What currency are you paid in?” A year earlier, Peskov dismissed concerns over the dollar’s exchange rate as a “relic of the past” and urged Russians to “get used to living in the ruble zone.”