The ruble rose on Wednesday to its strongest in more than seven years, driven higher by capital controls and weak demand inside Russia for foreign currency as it neared 50 against the dollar for the first time since May 2015.
The ruble has become the world’s best-performing currency this year, boosted by measures – including restrictions on Russian households withdrawing foreign currency savings – taken to shield Russia’s financial system from western sanctions imposed after Moscow sent troops into Ukraine on February 24.
Proceeds from commodity exports, a sharp drop in imports, and month-end tax payments in rubles by export-oriented Russian firms are further factors behind the currency’s gains.
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At 0819 GMT, it was up more than 2.7 percent to 50.32 against the dollar on the Moscow Exchange after hitting 50.01.
“Despite the end of the tax payment period, we expect the dollar-ruble pair to stay near the lower boundary of our 50-52 target range,” Promsvyazbank said in a note.
Against the euro, the ruble added 3 percent to 52.91, climbing beyond 53 for the first time since April 2015.
Capital controls have also enabled the currency to shrug off what the White House and Moody’s credit agency said on Monday was the first default by Russia in more than a century on its international bonds.
The Kremlin, which has hard currency from oil and gas revenue to make the scheduled payments on the debt, has rejected the designation, calling it artificial and engineered by Western sanctions.
The strong ruble dents Russia’s income from selling commodities and other goods abroad for dollars and euros, and Deputy Prime Minister Andrei Belousov said this month that industry would be more comfortable if it fell to between 70 to 80 against the dollar.
Many Russian companies, primarily non oil-and-gas exporters, are already suffering financially, said Evgeny Suvorov, economist at CentroCreditBank.
Just before Russia embarked on what it calls its “special military operation” in Ukraine, the ruble traded near 80 to the dollar and 90 against the euro.
At that time, it traded in free-float mode and, unsupported by capital controls, got hammered due to fears of sanctions. On the stock market, the dollar-denominated RTS index rose 1.5 percent to 1,488.6 points.
The ruble-based MOEX Russian index was 0.9 percent lower at 2,387.4 points, pressured by ruble gains.
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