The Russian ruble’s return to its pre-war exchange rate should not be mistaken as a sign of strength or resilience. Rather, the currency has benefited from factors that will eventually become major drags on both the federal budget and the real economy.
PARIS – After plummeting in value following Russia’s invasion of Ukraine, the ruble has clawed its way back to its pre-war levels. But this should be of little comfort to the Kremlin, because the factors that drove the ruble’s rebound augur additional problems for Russia’s economic performance.
The West has exhibited near-unprecedented unity and resolved in its response to Russian President Vladimir Putin’s war on Ukraine. Within just three days of the invasion, Western governments had frozen much of the Russian central bank’s foreign-currency reserves within their respective jurisdictions.
This move triggered financial panic within Russia – and spurred a powerful policy response. On February 28, the central bank imposed strict capital controls, tightened currency-trading restrictions, and hiked its key policy rate from 9.5% to 20%.
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