Russian President Vladimir Putin. MIKHAIL KLIMENTYEV/RIA NOVOSTI/AFP via Getty Images
According to one economist, given the ongoing war in Ukraine, the Russian ruble can only sink further.
The ruble is one of the worst-performing currencies this year, falling to nearly 92 per US dollar (100 per euro) on Friday.
Capital flight, falling tax revenues and an exhausted central bank are factors hurting Russia’s currency.
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The Russian ruble is among the worst performing currencies so far this year. It fell about 24 percent to almost 92 per US dollar (100 per euro) and the decline could deepen. “The ruble can only go down,” University of Chicago economist Konstantin Sonin said in a tweet on Thursday.
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The volatility of the ruble has increased sharply in recent weeks after the leader of the Wagner mercenary group, Yevgeny Prigozhin, staged a short-lived revolt against the Kremlin. The ongoing uncertainty in Russia has led to an increase in demand for other currencies. Bloomberg estimates that since the war began in early 2022, $43.5 billion in retail deposits have been withdrawn from the ruble in favor of other currencies.
Sonin stressed that the Russian ruble had rocketed in 2022 due to “strange” macroeconomic effects, including a sharp drop in imports, but that those effects are now over and the currency is now facing several headwinds that it is facing could hit a record low. “What remains is continued capital flight, falling fiscal revenues, both in oil/gas and domestic taxes, falling real incomes and central bank reserves lost to the war,” Sonin said.
The ruble is likely to fall further
The fall in oil prices has been a particularly difficult challenge for Russia this year, given that much of the country’s revenue comes from sales of this commodity. Crude oil prices are down about 10 percent since the start of the year, and the G7 countries have introduced a price cap of $60 a barrel for crude oil shipped by sea, threatening Russia’s chances of getting full market value for its oil sales achieve, reduced.
Russia’s oil sales revenue plummeted 50 percent in the first quarter of the year, leading the country to post a budget deficit of $42.5 billion in the first four months of 2023 had to. And the country’s war effort isn’t helping the economy at large as the country suffers from a brain drain.
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As the Russian economy faces mounting headwinds amid ongoing war efforts against Ukraine, Sonin expects the ruble to continue falling, although “not necessarily as fast as in recent months.”
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