The invasion of Ukraine left the Bank of Russia scrambling to support the rapidly plummeting currency amid international sanctions which froze many of its foreign currency reserves. Among the emergency measures enacted was a hike in interest rates to 20 percent in a bid to avert a run on the banks as Russians queued to withdraw money and exchange it into more stable forms. In the weeks since, the central bank has also bought in currency controls limiting the amount of foreign money Russians can buy.
Having reached as little as 138 to the dollar the ruble has outwardly recovered considerably, now standing at just over 83 to the dollar.
However many argue the excessive intervention by the Bank of Russia means this is far from a true reflection of value.
Tim Ash, an emerging markets strategist at BlueBay Asset Management, described the ruble as now having an “artificial exchange rate”.
While the measures have bought some stability to the ruble they are also not without risk for an economy under enormous pressure.
Simon Harvey, Head of FX Analysis at Monex Europe, noted that “not many economies can run 20 percent interest rates and still have growth”.
He explained while the hike has reassured savers and helped stabilise markets it was not sustainable.
Mr Ash also warned the “ability (of the central bank) to run this level of intervention on a sustained basis is limited.”
He explained Russia had so far burnt through around $40 billion (£30.55bn) of central bank reserves since the start of the conflict.
Around half of the total $640 billion (£488.73bn) war chest has been frozen by sanctions putting further limits on available funds.
In the long run he suggested other interventions such as emergency interest rates would slow growth with the Russian authorities “shooting themselves in the foot.”
Questions now turn to how long Russia will try to keep the ruble steady against the risks to growth.
This week the European Bank for Reconstruction and Development predicted Russia would face its deepest recession since the early 1990s with the economy set to shrink 10 percent.
Russia is already seemingly trying to inch back towards normality with limited reopening of Moscow’s stock exchange in recent weeks and a more recent relaxing in foreign currency restrictions.
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