Ruble's revival gives Russia an unexpected headache

Back in January 2016 the ruble hit a record low of 85 to the dollar as a combination of plunging oil prices and Western sanctions over Moscow's actions in Ukraine pounded the Russian economy.

Ruble's revival gives Russia an unexpected headache

World Bulletin / News Desk

It was a step that seemed unimaginable a year ago: the Russian authorities stepping in to stop the country's currency from getting too strong.

Since then the ruble has gained some 40 percent as oil has rebounded and the first shoots of economic recovery have begun to appear.

Hopes in Moscow for better ties with the West after the election of US President Donald Trump have only added to the gains.

While at first glance the reinvigorated ruble might appear positive for the authorities, for the number crunchers at the finance ministry it's not all good news, because of fears it could hurt Russia's newfound competitiveness.

Rather than scrambling to prop up the ruble, they announced Wednesday a plan to buy foreign currencies with the excess income from oil revenues -- the price has shot up some $15 over the $40-per-barrel forecast used to build the federal budget.

Officially, the explanation for the move is to build up a buffer to help decouple the energy-reliant economy from the volatile oil market, since the ruble often rises and falls in tandem with the price of black gold.

But while the central bank insists it is not seeking to curb the free float of the ruble, economists say the message from the move is clear.

"The central bank's return to the market would be an important psychological factor and indicate a strong state willingness to keep a weak ruble exchange rate," Alfa Bank analysts said in a note.

And even though the plan is meant to come into effect only from February, the impact of the announcement is already being felt.

After strengthening so far this year, the ruble fell back to about 60 to the dollar on Thursday, moving for once in the opposite direction of the price of oil.

Güncelleme Tarihi: 29 Ocak 2017, 13:40
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