- Russia's currency woes will deepen, according to the Carnegie Endowment.
- Researchers at the think tank say the main factors driving the ruble's decline will persist.
- Russia has few options to prop up its currency without doing further damage to its economy.
Russia's currency struggles aren't set to ease, as the main factors driving the ruble's decline will persist for the foreseeable future, according to researchers at the Carnegie Endowment.
In a recent note, the think tank pointed to the ruble's sharp decline since Russia began its invasion of Ukraine. The currency has been down around 27% since February 2022. The group said that the decline will likely continue, with the ruble falling further in value as economic factors continue to weigh on the currency.
"The changing structure of trade flows means the ruble is doomed to weaken further," researchers wrote this week. "The root cause is the war and ensuing Western sanctions and militarization of Russia's economy. The country's financial authorities don't have the power to solve this problem—and they're even afraid to speak about it publicly," they later added.
Demand for Russia's ruble plummeted at the outset of the war in Ukraine, sending the currency to a record low against the US dollar. Russia's central bank has since taken measures to prop up the currency, but demand remains weak, largely because Western trade restrictions have prevented Russia from exporting as much as it used to.
Russia's trade surplus rose 8% year-over-year in the first 10 months of 2024, government data shows.Sanctions have also weighed on the ruble's demand in recent months.
In October, Russia's government dialed back restrictions on traders, which allowed them to convert just 25% of their earned foreign currency into rubles, as opposed to the prior 50%. That hurt demand for the ruble, while demand for the US dollar and China's yuan rose, the researchers said.
Then, in November, the US imposed sanctions on Russian lenders, like Gazprombank. That pushed traders to buy more foreign currency, researchers said, which has also hurt the ruble's exchange rate.
Russia, meanwhile, looks like it's run out of options to prop up the ruble. The central bank could potentially conduct a market intervention, but Russia's National Wealth Fund — which would fund such a move — has dwindled from $100 billion in January 2022 to $31 billion as of the start of November.
Central bankers could also raise interest rates to support the currency's value. However, Russia's interest rates are already sky-high, meaning policymakers have limited their ability to hike rates further without doing potentially significant damage to th economy, the researchers added.
Interest rates in Russia have been raised to 21% to tame high inflation. Central bankers would likely need to hike interest rates another eight percentage points to "be sure of having an effect," the think tank estimated.
Policymakers have resorted to making verbal statements to prevent panic about the ruble's decline. Last month, Putin said there was no reason to worry about the ruble's slide, adding that the situation was "under control," Russian news outlets reported.
"Unimaginative as they are, these steps have been enough to halt the ruble's slide for now. But more downward lurches are likely to be just around the corner. The fundamental reasons for the ruble's weakness have not gone anywhere, and the dynamic of Russia's trade flows means the currency is destined to falter and inflation to rise," the Carnegie researchers said.
Russia's economy has held up, but the country is battling a host of economic challenges related to its war in Ukraine. Inflation was hovering around 9.32% year-per-year last week, and long-term growth prospects for the nation are poor, with some economists flagging a potential stagflationary crisis on the horizon.