The Russian ruble has been hit hard by escalating geopolitical tensions as Moscow builds military forces on the border with Ukraine and new US sanctions are likely to keep investors monopolized.
The country’s currency has depreciated nearly five percent in the past month, the lowest level in five months against the US dollar. Reached near 77. The fall of the ruble during this period was the deadliest of any major emerging market currency, involving only the Turkish lira.
Analysts had expected the ruble to return in 2021 after falling 16 percent last year due to the epidemic and falling oil prices.
But as Russia’s revived economy last week urged the economy ministry to adjust its growth to 7 percent and Russian firms rushed to buy equities to sell shares, the ruble hinted at a conflicting relationship with Moscow’s macroeconomic weakness.
“Geographers have now removed the currency market – concerns over tougher sanctions in the United States, which were a sufficient trigger for the past few weeks even before the escalating situation on Ukraine’s eastern border,” said Sophia Donets, Russia and CIS economist at Renaissance Capital.
Timothy Ash, chief strategist at Asset Management in Blue, echoed that sentiment: “It’s crystal clear how concerns about geopolitics are now affecting the ruble.”
These concerns have also hit Russia’s sovereign bond market, with US sanctions being declared a possible target in response to the SolarWinds hack, Moscow’s alleged interference in the 2020 presidential election, and the poisoning and imprisonment of President Vladimir Putin’s most prominent Alexei Navalny.
The JP Morgan index of the ruble-denominated Russian debt fell 4.4 percent this year on a total return basis, worse than a 2.6 percent fall for the bank’s diversified emerging market local currency bond gauge.
Meanwhile, holders of Russian ruble-denominated OFZ bonds fell to 20.2 percent in March from a five-year low of more than 30 percent a year earlier.
According to the MSCI index, Russian stocks have risen about ris percent this year considering the local currency, but only rose 1.2 percent when calculated for the fall of the ruble in 2022. This performance index follows the supplier’s Broad EM benchmark, which is 2.4 percent higher in dollar terms with the period.
Ash said Russia’s macroeconomic fundamentals include current account surpluses for rising oil prices and regular recommendations from investment banks to buy the country’s assets, including Telwinds.
“It looks like a brain but for geopolitical risks and [eastern Ukraine] The human mind is weighed. The ruble made the South African rand significantly more efficient last month to make it clear that it is a local story rather than a broad emerging market story.
Rising U.S. bond yields have recently put pressure on emerging markets, with higher returns given by risky assets showing fewer applicants.
The Kremlin responded to the satire by saying “nothing is running high here” but said tensions with Ukraine would “have an emotional impact on the market”. Putin’s spokesman Dmitry Peskov assured reporters last week that “the macroeconomic situation is absolutely stable and predictable” and claimed that the ruble instability would have no effect.
But the Kremlin’s own position is probably the first problem when Russian investors began selling rubles last month. Donets said Russian investors had partially moved away from the Kremlin through domestic political rhetoric, which has recently become significantly tougher in mood and intensity, Donets said.
Russia arrested more than 10,000 Navalny protesters in January before the anti-corruption activist was jailed, describing him as tortured and on a hunger strike in a notorious prison colony outside Moscow for refusing to provide him with wardens treatment.
In the run-up to parliamentary elections in September, Russia rushed to pass a new law restricting dissent and increasing its power to control the Internet, where Navalny has strongly opposed Putin.
Peskov said last week that Russian economic officials planned to prevent a repeat of “Black Tuesday” in 2014, when fears of oil prices and sanctions hit the ruble so severely that the central bank raised interest rates by 5.5 percentage points to 17 percent.
Since 2018, the Ministry of Finance has introduced a financial rule under which the budget break-even price of ড 43 per rel per barrel of national income fund squirrel surplus oil income.
But by reducing Ruble’s dependence on oil, Russia has increased its sensitivity to geopolitical shocks from sanctions, according to Artem Zygrin, chief economist at the Sova capital.
“With the continued application of revenue rules, the currency receives less support from higher oil prices,” he said.