The Russian Central Bank has taken dramatic steps in recent weeks to intervene in the market, implementing policies to prevent investors and companies from selling the currency and other measures that force them to buy it.
What did Moscow do to strengthen the ruble?
- The central bank doubled interest rates to 20%. This encourages Russian savers to keep their money in local currency.
- Exporters were ordered to swap 80% of their foreign exchange earnings in rubles rather than keep dollars or euros.
- Russian brokers were banned from selling securities held by foreigners.
- Residents are not allowed to make bank transfers outside of Russia.
- Russia has threatened to demand that it pay for natural gas in rubles, not in euros or dollars.
These actions allowed Moscow to artificially manufacture the demand for the ruble. The problem facing policymakers is that with the Russian economy deteriorating, no one actually wants to buy the currency on their own. When restrictions are lifted, the demand for the ruble will fall, and its value will fall – perhaps significantly.
The same applies to the stock market in Russia. The benchmark MOEX index headed higher when trading resumed a week ago after a long war-imposed hiatus, but analysts say this is due to restrictions on investors, including a ban on short selling. Only 33 shares were allowed to trade when the market reopened. When trading extended to all stocks this week, the index fell again.
With that in mind, the ruble’s rebound and stock market moves should not be taken as a sign that the Russian economy is on the mend. The country is facing its deepest recession since the 1990s, and the economy will shrink by a fifth this year, according to recent forecasts from S&P Global Market Intelligence.