Export, manipulation – The West cannot bring the ruble to its knees

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Although the West is issuing increasingly strict sanctions packages against Russia and also slowing Russian economic growth, the national currency, the ruble, is getting stronger and stronger. After a brief drop in price at the beginning of the attack on Ukraine – at that time you could get 145 rubles or more for one euro – the Russian currency recovered very quickly. Currently, you get only 65 rubles for one euro. However, it is not only manipulation that is responsible for the current.

The ruble is being “artificially” strengthened by a number of measures, including restrictions on foreign exchange operations by the central bank. Last but not least, the huge increase in interest rates helped, so many citizens invested their savings in rubles and not in foreign currencies. The policy rate is currently 14 percent. At the end of February, the central bank had drastically raised interest rates by 10.5 points to 20 percent. Since then, many banks have offered generous annual interest rates, often around ten percent for investments in rubles, while there is next to nothing for investments in euros or dollars.

Billions from gas and oil exports
However, the main reason for the strength is a record trade surplus. For example, by exporting oil and gas, Russia makes billions in foreign exchange that cannot be spent at all. Because the import of many western goods has collapsed, the country is sitting on its euro and dollar profits. That is also why Russian President Vladimir Putin on April 1, the conversion of gas payments for Europeans into rubles. The Kremlin chief said Russia could not buy anything with foreign currency.

Experts have calculated that Russia could have a $250 billion surplus by the end of the year, partly due to high energy prices. However, rubles are needed for the budget, investment strategist Sergey Suwerov told the news website Meduza. As a result of monetary policy, the Russian currency has now completely disengaged from the economy. “If the economy is in free fall and the ruble rate is strengthening, then that is not right,” says the expert. The central bank estimates that Russia’s gross domestic product will fall by eight to ten percent this year. She previously assumed economic growth of two to three percent.

Economist: Only a full embargo can bring the ruble to its knees
However, if sanctions are imposed on other Russian banks, it could destroy exports and massively damage the currency, Suwerov says. Chief economist Moritz Kramer of the Landesbank Baden-Württemberg in Stuttgart agrees: “As long as Russia exports, the ruble will remain strong.” Only a full embargo can “bring the ruble to its knees,” he says. But the buyers did not hold back. “Oil tankers have been picking up record volumes of crude oil from Russian ports since mid-April. Most under the Greek flag!”

For people in the largest country in the world in terms of area, there are not too many advantages due to the strong ruble. After the ruble crash in March, prices for imported goods such as cheese or alcohol from the West were adjusted to the high exchange rate. Employees hastily pasted new price tags. A bottle of champagne for 2900 rubles became a bottle for 4900 rubles. However, prices were not adjusted back to the strong ruble. The result: the champagne, which cost 34 euros before the war, is now more than 75 euros.

However, the Russian leadership can contain inflation so that goods do not become even more expensive. “If the ruble were not so strong, inflation would not be 20 percent, but 30 to 40 percent,” says Suwerov. The tabloid Moskovsky Komsomolets recently gave 10,000 rubles a year and needy support from the state budget. There is such help “even in America,” it said.

Source: Krone

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