The Russian currency is on the upswing again – also because the central bank has intervened in the currency market. But analysts are still worried about the oil dispute.
The “black Monday” on the stock market has also left its mark on foreign exchange. The Russian ruble was particularly affected, which had fallen to the lowest level against the US dollar since early 2016. It also fell by around nine percent against the euro. The background is the dispute between Saudi Arabia and Russia about the future oil production that will lead to a dramatic fall in the price of oil. This is putting Russia, as a large oil producer, under pressure.
The Russian currency stabilized somewhat this Tuesday and rose by more than four percent against the euro by morning. The Russian central bank reacted on Monday and announced measures to support the ruble. So she does not want to buy foreign currencies for the next 30 days. It was only in early March that the Treasury Department decided to purchase around $ 100 million a day.
Nevertheless, experts fear that the fall in the oil price will further weaken the ruble. Last year, oil and gas accounted for almost half of Russias export earnings. The rating agency Fitch warns of a budget deficit in Russia. “Moscow hardly expected the oil price to drop to almost $ 30,” said Fitch analyst Dmitri Marintschenko. This is a bad surprise.
Commerzbank foreign exchange expert Ulrich Leuchtmann points to the still very high dependence of Russia on the oil price. “All past efforts to make Russias economy less dependent on oil have so far been unsuccessful,” he writes in a recent analysis. “So the bottom line is whether the Russian economy can handle such a dramatic drop in the price of oil.”
Leuchtmann points to experiences from 2015. At that time there had been a recession in Russia which, in his view, was “largely triggered by the drop in the oil price and less by the US sanctions against Russia”.
The situation at the time was also preceded by a 2014 ruble decline. At that time, one euro even briefly cost 100 rubles. The central bank stopped the ruble decline with a brute rate hike to 17 percent, which put a heavy burden on the economy.
In the current environment, the Russian central bank recently because of the weak Economy interest rates cut more and more. A drastic increase would likely stop economic growth in Russia entirely.
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