Russia’s Ruble Surges—But the Rally Masks Deeper Economic Stress
On the surface, Russia's ruble is punching above its weight—a currency rally that's turning heads and raising eyebrows. But peel back the glossy headlines, and you'll find an economy running on fumes, capital controls, and geopolitical maneuvering.
The Illusion of Strength
Forget organic growth. This surge isn't driven by booming exports or foreign investment flooding in. It's engineered. Strict capital controls trap money inside the country, while mandatory conversion of export revenues props up demand. The central bank's playbook reads more like crisis management than monetary policy—slashing rates to spur a lifeless economy, even as inflation lingers.
What the Numbers Don't Show
A strong currency typically signals a robust, open economy. Here, it signals the opposite: isolation. Imports have cratered due to sanctions, shrinking the supply of foreign currency needed by businesses. Domestic production hasn't filled the gap—instead, shortages and supply chain knots are stifling growth. The rally masks a stark reality: the economy is contracting, living standards are slipping, and long-term investment is fleeing.
The Finance Sector's Cynical Take
In the world of high finance, they have a term for this: a 'policy put.' It's when authorities artificially inflate an asset's value to avoid facing the music—a short-term fix with long-term consequences. Traders might chase the rally, but smart money sees a house of cards built on capital controls and commodity mandates. After all, nothing says 'economic vitality' like forbidding your citizens from moving their own money abroad.
The ruble's rise is a facade. It's a managed token in a walled garden, not a freely traded currency reflecting economic health. When the controls eventually loosen, the true stress test will begin—and the market rarely forgets a manipulated rally.
Oil crash and sanctions hammer Russia’s revenue
Russia did meet its revised budget deficit target of 2.6% of GDP, with the final shortfall reaching 5.6 trillion rubles (about $71.6 billion). But that wasn’t the original plan. The budget had aimed for a gap of just 0.5% of GDP, before everything got wrecked by the lowest oil and gas revenue in five years.
A mix of falling global crude prices, steep discounts on Russian oil, and that pesky strong ruble caused energy revenue to crash 24% year-over-year. In December, after the U.S. slapped new sanctions on Rosneft PJSC and Lukoil PJSC, oil and gas income dropped 43% in just one month.
“We fully understand that we cannot rely on high levels of oil and gas revenues over the long term,” Finance Minister Anton Siluanov said in an interview with state television channel Rossiya 24 late last year.
Russia’s economic growth for the year likely landed below 1%, according to internal estimates, missing literally every single official forecast and falling drastically short of the 4.3% growth rate in 2024.
So even though this deficit isn’t the worst in recent memory, 2020 still holds the record at 3.8% of GDP; the situation now feels more fragile.
Borrowing is also a nightmare. The central bank’s key interest rate is now at 16%, way up from the 4.25% seen back then. With foreign investors mostly gone, raising money is harder and pricier.
Russia’s finance ministry boosts daily currency sales
To avoid a ruble collapse, Russia’s Finance Ministry is throwing more foreign currency into the market. Starting Friday, it’s bumping daily forex sales from 5.6 billion rubles to 12.8 billion rubles (about $164 million).
Add in the central bank’s sales, and a total of 17.42 billion rubles will be dumped every day between January 16 and February 5, up from 14.54 billion rubles daily before.
All told, the ministry plans to offload 192.1 billion rubles worth of foreign currency during that period. Last month, it only sold 123.4 billion. These sales are pulled from the National Wealth Fund, which is denominated in foreign currency, mostly Chinese yuan. The central bank buys and sells on behalf of the ministry to help keep the market stable.
The strategy worked in 2025, when a mix of high interest rates, forex sales, and weaker imports propped up the ruble. But analysts in the latest Reuters poll say the ruble could fall back to 96.7 per dollar over the next year.
The central bank had earlier said that: “Elevated inflation expectations may impede a sustainable slowdown in inflation. We will focus on how prices, as well as consumer and business expectations, react to the increase in VAT and tariffs.”
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