Russia’s efforts to prop up the ruble appears to be working despite sanctions imposed by Western countries aimed at cutting the Kremlin’s access to external resources and crippling the nation’s ability to fund its war against Ukraine.
Last week, the ruble surged to a more than two-year high against the euro and the US dollar, recouping its losses during the war. The rally was triggered by Russia’s last-ditch attempt to avoid defaulting on a eurobond on Friday.
Russia’s finance ministry paid $564.8 million in interest on a 2022 eurobond and $84.4 million on another 2042 bond, the ministry said Friday. Both payments were made in US dollars, marking a reversal from its previous threat to pay its debts in rubles.
To begin this week, the ruble has continued its strong performance, with the USDRUB down almost 3%. As it stands, Rubles are exchanging hands at less than 69 per USD.
Rating cut to selective default Prior to the payment of these bonds, Russia had earlier paid its dollar-denominated bonds in rubles, triggering a rating downgrade by S&P Global Ratings to “selective default.”
The rating agency said investors won’t likely be able to convert those payments into dollars equivalent to the amount due as sanctions on Russia are predicted to worsen in the coming weeks.
Gas for ruble In a bid to bolster the ruble and retaliate against Western sanctions, Russia, one of the top oil-producing countries worldwide, required “unfriendly” buyers of the country’s natural gas to pay in rubles. While many European Union leaders were quick to reject the Kremlin’s demands, one of Germany’s biggest energy companies, Uniper, said it was ready to buy Russian gas by converting its euro payments into roubles.
"We consider a payment conversion compliant with sanctions law and the Russian decree to be possible," a spokesman was quoted by BBC as saying recently, adding that the absence of Russian gas “would have dramatic consequences for our economy.”
Russian national energy giant Gazprom recently cut off its gas supplies to Poland and Bulgaria due to their refusal to pay in rubles.
Commodity powerhouse Many countries’ reliance on Russian oil and other commodities like wheat has helped the ruble avoid collapse and may play a role in supporting the currency moving forward.
Vyacheslav Volodin, a top Russian lawmaker, over a month ago said Russia should demand ruble payments for other commodities like wheat, fertilizer, and lumber, adding that Western governments have to pay for their decisions to sanction Russia.
I'm here in Russia, and I want you to understand something. Much of what you wrote is true, but... Over an extremely short distance. Our so-called government (actually it is a criminal syndicate dangerous for whole world) can do such tricks in a short distance, so they delayed the default for the second time. And they cannot get out of the war, because (and this must be understood very clearly), they serve the metaphysical logic that the ruler remains the ruler (and his gang with him, that is, this "government"), if they prove strength. Strength is proven especially through war. Ukraine declared that there would be no more peaceful settlements, and issue would be uncompromisingly resolved on battlefield. Their mobilization is growing both qualitatively and numerically. The supply of cool weapons is growing. In Russia, the number of combat-ready formations is falling, and there is no real excitement for those who want to go to war. Consequently, the Kremlin authorities will continue to wage war so as not to drop Putin's face with the means and forces that are still there. Ukrainians then may well count on a military rout. Since the war is not stopped, Putin's system will have to burn and burn currency every quarter to stabilize this rate. In addition, let me remind you that there is no normal market situation for USD/RUB players now, the Central Bank has voluntaristically limited the number of significant actors that could influence the rate. And it is the monopoly engine of the course. Which is proved by the fact that we manage to sell USDT in Russian exchangers for 80 rubles. The price regulated by the Central Bank is fake. I foresee that in the second half of the year, there will no longer be rational motives to continue burning such now scarce dollars in Russia. And the course will be released again for a while. Those titanic interventions that are now underway to delay the default are a turbo mode in which you cannot drive all the time. It won't last very long. They can even drag it out all summer and half of the fall. But by November... Maybe even earlier.
ArtSergeevich
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@averkieskila, It's not only about central bank measures. It is more about banning import to Russia, while keeping an export at even higher level as before. Gas, oil, metals, wheat prices surged due to sanctions, so Russia is now getting record surplus in it's export income. In other words, it's like trying to bankrupt someone giving him twice more money than before and saying "just don't spend them! I am watching you". Central Bank got so many dollars that it doesn't know what to do with them. I think it's first time in history when all Russian export money go to the country. Previously they were all accumulated in Europe or offshores. I must say these are very strange economic sanctions. You also can't say it's a fake price for dollar, if you can exchange it for this price, send to China or other country to import some goods, etc. Reason for this rubble rate is foreign trade misbalance
averkie_skila
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@ArtSergeevich, Yes, but you can't buy enough dollars inside Russia for a private person (or commercial institution). That's why this is an artificial situation. If they allowed to buy in any quantities, there are plenty of people here who do not trust the ruble (in Russia almost everyone who has money does not like their national currency, it's an old story), they would buy even more dollars now and the rate would go up because of demand. But there is no pressure to buy, because there are restrictions on buying. This is why the Central Bank manages to dump the price.
ArtSergeevich
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@averkieskila, you can't only buy dollars in cash. You can buy any amount to keep on your account. But yes, you can't send them abroad more than 10k in month, if it's not a foreign trade contract. For a foreign trade you can send any amount as well. Previously a bigger part of pressure on ruble exchange rate was funds transfer out of the country. But now Europe and USA have in fact limited Russian investments in their own economies. As well as many international trading companies. They've left, they don't get their share of money from Russian export dollars. What is the point? I really don't think this oil and gas export income can be stopped. Just someone will get it's share from higher prices. This is global economy. They have been buying oil even from ISIS. Ruble exchange rate is now close to the point, when it will get very profitable to import goods from China and replace European goods. Since this process will gain momentum, ruble exchange rate will start to drop again
Over an extremely short distance. Our so-called government (actually it is a criminal syndicate dangerous for whole world) can do such tricks in a short distance, so they delayed the default for the second time. And they cannot get out of the war, because (and this must be understood very clearly), they serve the metaphysical logic that the ruler remains the ruler (and his gang with him, that is, this "government"), if they prove strength. Strength is proven especially through war. Ukraine declared that there would be no more peaceful settlements, and issue would be uncompromisingly resolved on battlefield. Their mobilization is growing both qualitatively and numerically. The supply of cool weapons is growing. In Russia, the number of combat-ready formations is falling, and there is no real excitement for those who want to go to war. Consequently, the Kremlin authorities will continue to wage war so as not to drop Putin's face with the means and forces that are still there. Ukrainians then may well count on a military rout. Since the war is not stopped, Putin's system will have to burn and burn currency every quarter to stabilize this rate. In addition, let me remind you that there is no normal market situation for USD/RUB players now, the Central Bank has voluntaristically limited the number of significant actors that could influence the rate. And it is the monopoly engine of the course. Which is proved by the fact that we manage to sell USDT in Russian exchangers for 80 rubles. The price regulated by the Central Bank is fake. I foresee that in the second half of the year, there will no longer be rational motives to continue burning such now scarce dollars in Russia. And the course will be released again for a while. Those titanic interventions that are now underway to delay the default are a turbo mode in which you cannot drive all the time. It won't last very long. They can even drag it out all summer and half of the fall. But by November... Maybe even earlier.