A downward spiral

How Russia is trying to combat ruble devaluation — and why even the government doubts it will be enough

In late April, the Russian government extended a decree requiring exporters to exchange most of their foreign currency earnings for rubles on the domestic market. Officially, these measures aim to “preserve the stability of the exchange rate.” However, despite these efforts, forecasts for the ruble paint a grim picture. Although the currency has somewhat stabilized at around 90 rubles to the dollar, even Russia’s own Economic Development Ministry predicts a potential weakening to 100 to the dollar by next year. Meduza explains what Russia is doing to combat ruble devaluation and what economists think about the effectiveness of these measures.

‘Temporary’ measures

In October 2023, with the dollar hovering above 100 rubles on the Moscow Exchange, Russian President Vladimir Putin signed a decree mandating that 43 groups of export companies repatriate 80 percent of their earned currency and subsequently sell 90 percent of that amount on the domestic market. They were allotted two months for revenue repatriation and just two weeks for sales. The Russian authorities reasoned that if major exporters kept selling dollars, euros, and yuan, this would prevent a supply deficit, and the ruble would stop weakening.

The measure, which was supposed to be a temporary one, caused its share of complications. Companies complained that sometimes they were paid in rubles — which they then had to exchange for foreign currency abroad, transfer to Russia, and sell again for rubles. Sanctions also made it difficult for exporters to transfer foreign currency to Russian banks. In light of these issues, the government made some compromises and amended the decree just a month before it was set to expire. Then, after some debate, the authorities decided to extend the legislation until at least spring 2025, while adjusting certain conditions. For example, exporters now have 120 days to credit foreign currency earnings to their Russian accounts.

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It’s difficult to gauge the effectiveness of these measures. The government first tested the mechanism back in March 2022; then, the authorities required exporters to sell foreign currency within three days of receipt, causing the dollar to plummet from 120 to 55 rubles. This time, the impact has been more modest: the dollar has gone down to around 90 rubles. Essentially, the decree didn’t do much to change the situation, since exporters were already offloading a substantial portion of their foreign currency earnings. The regulations mostly just dissuaded speculators from betting on the ruble’s decline.

However, things do appear to have stabilized. At the time the decree was signed, the ruble had been steadily weakening over the preceding 10 months. Now, the rate has remained relatively stable for six months. RBC calculated that the ruble depreciated by only 0.5 percent in April, writing that “it’s hard to imagine a calmer month on the foreign currency exchange.” BCS Financial Group echoed this sentiment, saying that exchange rate volatility is the lowest it’s been in three years. The Russian authorities asserted that “the implemented measures have demonstrated their effectiveness and helped stabilize the situation.” Russia’s Federal Financial Monitoring Service (Rosfinmonitoring), tasked with overseeing compliance, claims that exporters have been adhering to the regulations.

Market factors

Critics of mandatory currency sales contend that the situation is improving without any additional demands on exporters. The most influential proponent of this view is Russian Central Bank Head Elvira Nabiullina. She opposed such regulations from the outset, asserting that Central Bank measures would be enough to strengthen the ruble. In the summer of 2023, the Central Bank began raising the key interest rate in an effort to curb inflation. The higher key rate should also dampen import demand, consequently weakening demand for foreign currency and easing pressure on the exchange rate. Furthermore, elevated interest rates should incentivize exporters to sell their earnings on the domestic market to fund local operations rather than take out costly loans. A high interest rate also makes holding savings in rubles more lucrative, notes Mikhail Vasilyev, the chief analyst at Sovcombank.

Opponents of further regulations also highlight the rising price of Russian raw materials. While oil prices began climbing as early as last summer, this has a delayed impact on the exchange rate: tankers first have to reach India or China, and then it may take time for local companies to find a way to pay Russian suppliers due to sanction risks. In the fall of 2023, Sberbank CEO Herman Gref predicted that the ruble would strengthen to around 90 to the dollar and stabilize without government intervention.

The Central Bank opposed extending the decree, citing positive market factors for the ruble, such as reduced imports (due to payment and logistics problems) and increased exports (driven by soaring oil prices). However, Yuri Kravchenko, an analyst at Veles Capital, emphasized that the stability of currency inflow, which mandatory sales ensure, is important for the market. Despite current high prices for raw materials, low trading volumes in recent years have fueled sharp fluctuations in the exchange rate. If the decree were abolished, volatility could increase. BCS Financial Group predicts that without the support, the ruble could depreciate to 97.5 against the dollar. At the same time, economists don’t expect the ruble to strengthen as a result of the decree’s extension; there will simply be fewer triggers for sharp depreciation.

Egor Susin, the managing director at Gazprombank Private Banking, described mandatory sales as “a crutch designed to smooth out imbalances” but said they’ve helped make the foreign currency exchange market less sensitive to economic shifts. While extending the decree may increase transaction costs for exporters, Susin believes the benefits outweigh the drawbacks.

An unfavorable trajectory

Despite various regulatory measures, most forecasts, including official government assessments, paint a bleak picture of the ruble’s trajectory. Initially, Russia’s Economic Development Ministry projected an average exchange rate of about 90 rubles to the dollar for 2024. However, Economic Development Minister Maxim Reshetnikov later revised this forecast to 94.7 rubles to the dollar. Extrapolating from this yearly average, analysts from the Telegram channel MMI estimated that by the close of 2024, the dollar would reach 99.5 rubles. Further following the ministry’s projections, the ruble should settle above 100 to the dollar in 2025.

A few days later, the ministry outlined an alternative, “worst-case” scenario: pressure from sanctions could cause oil prices to plummet to $51 per barrel, hastening the ruble’s depreciation. If this happens, the average exchange rate could soar to 120 rubles per dollar by 2027. Adding to concerns, despite overall high oil prices, Russian exporters are often forced to sell at a discount to incentivize buyers wary of running afoul of sanctions.

Independent economists have given similarly pessimistic predictions about the exchange rate. The Central Bank regularly surveys dozens of professionals and publishes a consensus forecast. In April, they projected an average rate of 92.9 rubles to the dollar for this year, worse than their previous forecast of 91.2 rubles to the dollar. Dmitry Polevoy, the investment director at Astra Asset Management, attributes this to factors such as robust domestic demand, reduced exports due to sanctions, and increased capital outflows amid income growth in an overheated economy. He anticipates the dollar climbing to 95 to 100 rubles by the end of the year.

Alfa Wealth analysts note that the ruble has stabilized for now, but caution that exchange rates in the 92–95 range are still too high. Moreover, they point out that the ruble is “mathematically much more likely to weaken than to maintain its current position or strengthen,” both because of high inflation and the government’s need to execute its budget, which calls for record spending.

Meanwhile, other support measures are starting to falter. Currently, the Russian government is selling off more foreign currency than it’s buying, but the margin is narrowing. Any further closing of this gap could adversely impact the ruble’s value. Additionally, Russia is voluntarily cutting oil production and exports in coordination with OPEC+ countries, further reducing the inflow of foreign currency. Furthermore, frequent drone strikes on Russian oil refineries threaten fuel supplies, prompting the government to impose a ban on gasoline exports. In light of these factors, SberCIB Investment Research analysts predict the ruble will weaken to 95 against the dollar by the end of spring and will continue trading at this rate through the end of the year.