The ruble is so strong, it could hurt Russian businesses, official warns

Russia’s ruble is so strong it could hurt the country’s businesses that rely on exports, the country’s minister of economic development warned Wednesday.

After hitting all-time lows in the first weeks after Russia sent troops into Ukraine in late February, the ruble has mounted a stunning recovery, this month reaching its highest exchange rate since May 2015.

The Russian Central Bank’s official exchange rate Wednesday was 52.9 rubles to the dollar. Although the rate is seen by some as a sign Russia is weathering Western sanctions, the strong ruble makes Russian exports more expensive.

“I think my colleagues will confirm that the profitability of many industries, even export-oriented, has become negative at the current exchange rate,” economic development minister Maxim Reshetnikov was quoted as saying by Russian news agencies.

“If such a situation will last for several more months, I think many enterprises may come to the idea not only of curtailing investment processes, but also of the need to adjust current production plans and reduce production volumes,” he said.

Central Bank head Elvira Nabiullina this month suggested that Russia should broadly reorient its economy away from relying on revenue from exports.

Sanctions “collapse” imports

A major reason the ruble has shown such strength this year is rising prices for oil and natural gas have allowed Russia to rake in billions of dollars from commodity exports. At the same time, wide-ranging sanctions mean Russia is buying fewer imports from abroad.

“Apart from soaring export revenues, we have a collapse in Russian imports owing to Western sanctions,” Tatiana Orlova, lead emerging markets economist at Oxford Economics, told CBS MoneyWatch recently.

Earlier this year, Russia’s central bank imposed capital controls to prevent money from leaving the country, including a ban on foreign holders of Russian stock and bonds taking dividend payments out of the country and a requirement that exporters convert some of their excess capital into rubles. The bank has gradually loosened conversion requirements as it seeks to bring the ruble’s value down to more favorable levels.