Russia Is Willing to Let Ruble Weaken to Ease Sanctions Pressure
Russia’s ruble is on the slide toward 100 per dollar and this time the authorities appear resigned to letting it hit a level that previously provoked strong policy responses.
A weaker ruble isn’t a concern now and it will benefit the state budget amid plans for increased spending next year, two people with knowledge of the situation said, asking not to be identified discussing government policy. Officials are willing to let the ruble reach 100 to the dollar, the people said.
The Bank of Russia has relied on interbank transactions to calculate the ruble rate since the Moscow Exchange halted dollar and euro trading after the US sanctioned the group in June. The punitive measures have exacerbated a foreign-currency shortage, and central bank data show the ruble is now about 9% weaker than on the last trading day. A US deadline for entities to exit operations on the bourse expired on Oct. 12.
“In the current situation, 100 rubles per dollar isn’t so scary, although it does have a certain inflationary effect,” said Oleg Vyugin, a former top Bank of Russia official.
The press services of the government and the Bank of Russia didn’t immediately respond to requests to comment.
The ruble has also declined over the same period against China’s yuan, which became the main alternative to what the Kremlin views as “toxic” currencies since President Vladimir Putin’s 2022 invasion of Ukraine prompted sweeping sanctions by the US and its allies. The Russian currency has fallen 11% against the yuan on the Moscow exchange to 13.26, the lowest since May.
The ruble twice broke through 100 per dollar last year. The central bank responded by hiking the key interest rate 350 basis points at an emergency meeting in August last year. The government then imposed tougher capital controls in October, requiring 43 groups of exporters to repatriate 80% of their foreign-currency earnings and to sell almost all of it for rubles on the domestic market.
Economy Ministry forecasts show the government is planning for a weaker currency, with officials expecting an average of 96.5 rubles per dollar in 2025 compared with 91.2 this year.
The ruble’s recent weakness reflects difficulties with foreign trade payments facing importers and exporters, said Dmitry Polevoy, investment director at Moscow-based Astra Asset Management.
With the US in June ramping up the threat of secondary sanctions on banks in Russia’s key trading partners, businesses are facing growing payment difficulties. They’re getting less foreign currency now and having more trouble returning it to Russia from places like China and Turkey.
The government has responded by easing measures that supported the ruble. Mandatory conversion of export proceeds was halved to 25% from 50% in an order published late Friday. That followed decisions to lower the requirement for repatriating earnings to 60% in June and then to 40% a month later.
“The government is forced to accommodate exporters,” said Natalia Milchakova, an analyst at Freedom Finance Global in Kazakhstan.
Currency sales by Russia’s largest exporters collapsed by 30% in September compared with the previous month as a larger share of settlements were conducted in rubles, according to Bank of Russia data.
The ruble weakened to around 120 per dollar immediately after the war began, but quickly rebounded as the central bank more than doubled the key rate to 20% in an emergency hike before gradually easing.
Now back at 19%, the rate may return to that peak level when policymakers meet next week, as the central bank strives to cool Russia’s overheating war economy and curb accelerating inflation that’s more than double its 4% target.
The bank will be left to use monetary policy to offset collateral damage from the weak ruble in the form of high inflation, said Milchakova, the analyst.
