Ruble bounces back from 18-month low against dollar.
By Alexander Marrow
October 9, 2023 – 8:07 AM PDT
(Reuters) – The rouble rebounds after hitting an 18-month low against the dollar
Amid a volatile session, the rouble managed to gain ground thanks to higher oil prices. Reduced foreign currency supply had initially hampered its performance.
Events in the Middle East dampen risk appetite
The Israeli military’s call for 300,000 reservists, following a raid by Hamas fighters that resulted in the deaths of hundreds of Israelis and the seizure of hostages, shattered Israel’s reputation of invincibility.
By 1500 GMT, the rouble had recovered from hitting its weakest point since March 23, 2022, and was 0.7% stronger against the dollar at 99.75. It had previously tumbled to a record low of 121.5275 after Russia’s invasion of Ukraine in February 2022.
The rouble also gained 0.5% against the euro, trading at 105.24, and firmed 0.6% against the yuan, reaching 13.64.
The rouble’s previous tumble led to emergency rate hikes and discussions of currency controls
In response to the rouble’s previous fall into triple digits, the Bank of Russia implemented an emergency 350 basis-point rate hike to 12% and authorities considered reintroducing controls to support the currency. However, interventions have been more limited this time around.
Rates were raised to 13% in September, and analysts expect another hike on Oct. 27. The persistent weakness of the rouble is seen as a factor limiting Russia’s long-term growth prospects.
Higher oil prices contribute to the rouble’s rebound
Brent crude oil, a key export for Russia, rose 3.9% to $87.85 a barrel due to the military conflict in the Middle East.
Russia’s finance ministry predicts an increase in tax revenues from energy companies in October.
“If these forecasts come true, then oil companies will have to sharply increase the volume of sales of FX revenues for settlements with the budget,” said Alor Broker’s Alexei Antonov.
Antonov added that exporters are unlikely to limit FX sales until the end of the month when taxes are due, suggesting that the rouble could continue to recover this week.
Russian stock indexes, particularly oil companies, experienced gains.
The dollar-denominated RTS index (.IRTS) rose 1.4% to 1,001.3 points, while the rouble-based MOEX Russian index (.IMOEX) reached a near one-month high, rising 0.9% to 3,172.2 points.
Reporting by Alexander Marrow Editing by Angus MacSwan, Mark Potter, and Gareth Jones
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How has the fluctuation of the rouble impacted the Russian economy?
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The impact on the Russian economy
The fluctuation of the rouble against major currencies has significant implications for the Russian economy. The previous tumble of the rouble led to emergency rate hikes and discussions of currency controls, indicating the severity of the situation. The persistent weakness of the rouble is seen as a limiting factor for Russia’s long-term growth prospects.
The recent rebound of the rouble, driven by higher oil prices, brings some relief to the Russian economy. Brent crude oil, a key export for Russia, rose 3.9% due to the military conflict in the Middle East. This increase in oil prices is expected to contribute to higher tax revenues from energy companies in October, providing some stability to the Russian budget.
However, analysts remain cautious and anticipate further rate hikes in October. The vulnerability of the rouble and its sensitivity to external factors, such as geopolitical tensions, highlight the need for continued monitoring and economic measures to ensure stability.
The geopolitical context
Events in the Middle East, particularly the Israeli military’s call for reservists and the raid by Hamas fighters, have had a significant impact on global risk appetite. The reputation of invincibility previously associated with Israel has been shattered, leading to increased volatility in financial markets.
These geopolitical tensions have further exacerbated the vulnerability of the rouble. Reduced foreign currency supply initially hampered its performance, but the rebound in oil prices has provided some respite. It is crucial for Russia to carefully navigate these complex geopolitical dynamics to ensure the stability of its currency and economy.
The role of the central bank and future prospects
The Bank of Russia has played a crucial role in managing the rouble’s volatility. Emergency rate hikes and discussions of currency controls demonstrate the central bank’s commitment to stabilizing the currency and ensuring economic resilience.
Analysts expect further rate hikes in October, indicating that challenges still lie ahead for the Russian economy. The central bank’s actions and policies will be instrumental in addressing these challenges and fostering long-term growth.
Conclusion
The recent rebound of the rouble after hitting an 18-month low against the dollar demonstrates the importance of external factors, such as oil prices, and geopolitical tensions in shaping currency performance. While the increase in oil prices provides temporary relief, sustained efforts are needed to address the underlying vulnerabilities of the Russian economy.
The role of the central bank and the implementation of economic measures will be crucial in navigating these challenges and ensuring long-term stability and growth. As the situation evolves, it is essential to closely monitor the rouble’s performance and its implications for the Russian economy.
About the Author
Alexander Marrow is a financial journalist with Reuters, specializing in global economic trends and market analysis. He has extensive experience reporting on the volatility of currencies and its impact on different economies. Alexander holds a degree in Economics from a prestigious university and has been covering financial markets for over a decade.
" Conservative News Daily does not always share or support the views and opinions expressed here; they are just those of the writer."
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