Page 63 - RusRPTAug23

The CBR put in a massive 1000bp rate hike a few days after the war started last February in an effort to shore the collapsing ruble. The exchange rate soared as the ruble rapidly strengthened, reassuring the public.
This year the CBR has engineered a collapse of the ruble which has dramatically weakened, but this has the effect of bolstering Ministry of Finance (MinFin) revenues to help close the budget deficit, which is painfully large.
As oil tax revenues are received in dollars, but paid out in rubles, the government is the biggest winner from a ruble devaluation as it earns more nominal rubles to meet spending targets set in the budget even if those rubles are worth less. The net effect is to reduce the deficit.
The ruble experienced a significant decline at the beginning of July. On July 6, the exchange rate against the US dollar reached as low as RUB94, while against the euro, it fell to 102.
This marks the weakest performance of the ruble since March 2022, following Russia's invasion of Ukraine. Since the start of this year, the ruble has depreciated by approximately one-third of its value, making it the worst-performing emerging market currency of the year so far The Bell reports.
The recent insurrection led by Yevgeny Prigozhin has played a major role in triggering the current weakness of the currency. The short-lived uprising by the mercenary leader has raised concerns about domestic political instability, which has affected the value of the ruble. This is the first time since the opposition protests in 2011 and 2012 that fluctuations in the ruble's price have been primarily influenced by domestic politics.
However, underlying issues have also contributed to the ruble's decline. Several factors are currently working against the currency, including low export levels, increased imports, capital outflows from Russia to foreign accounts, extremely low liquidity, and the absence of non-residents in the currency markets.
The absence of non-resident investors is particularly significant. In previous years, a significant devaluation of the ruble would have attracted non-residents seeking to take advantage of the differences between interest rates and exchange rates. However, due to Western sanctions, Russia's isolation, and the ongoing war in Ukraine, these investors have vanished, and it is unlikely that they will return.
As a result, the ruble's exchange rate is now more dependent on Russia's balance of trade. Ksenia Yudayeva, Deputy Head of the Central Bank, emphasized the impact of the current slump on the country's current account. Yudayeva noted a significant reduction in export earnings this year compared to last year, attributing it, among other factors, to falling prices.
63 RUSSIA Country Report August 2023 www.intellinews.com