Russian ruble extends recent surge amid news on Ukraine

The Russian ruble extended its recent surge to 88 per USD in February, reaching its strongest level in five months. This rally comes amid growing optimism surrounding the possibility that the ongoing war with Ukraine may end with a favorable outcome for Moscow.

Russian ruble extends recent surge amid news on Ukraine

Russian officials participated in talks with the US, notably in the absence of the Ukrainian delegation, where they discussed potential terms for a ceasefire. The discussions raised hopes that a resolution could be on the horizon, which, in turn, boosted investor sentiment toward Russian assets, including the ruble.

Russian securities experience a rally

Russian securities also experienced a rally following comments from members of former President Trump’s administration, which suggested the possibility of the removal of sanctions once the conflict ends. These sanctions have been a major impediment to Russia’s economy, restricting its ability to export goods and access global financial markets since 2022. The anticipated lifting of these sanctions could significantly improve the outlook for Russian economic growth and, by extension, increase demand for the ruble. Such expectations have led investors to speculate on a stronger ruble in the near future.

CBR kept its key interest rate unchanged

At the same time, the Central Bank of Russia (CBR) kept its key interest rate unchanged at a record-high 21% during its February meeting, in line with market expectations. The central bank has maintained this high rate in a bid to curb inflation and stabilize the ruble, but it has also indicated that it may consider a rate hike next month if the economic conditions warrant it. The potential for a rate hike has added to the positive sentiment surrounding the ruble, as it signals the CBR’s commitment to safeguarding the currency’s value.

What limited ruble rebound

However, the ruble's rebound has been limited by Moscow's ongoing efforts to manage the currency's value in line with the country’s economic needs. Specifically, Russia has implemented measures to deliberately devalue the ruble in order to boost its export revenues, which are crucial for financing military expenditures related to the war. This strategy, while helping to generate funds for the state, has acted as a brake on a stronger recovery for the ruble, preventing a more sustained rally. The outlook for the ruble remains closely tied to geopolitical developments, particularly the progress of the peace talks and the eventual resolution of the conflict with Ukraine.