In Deep Ruble

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What's going on?

Russias currency has dipped to a 16-month low against the US dollar.

What does this mean?

Ever since Russia invaded Ukraine, the ruble has been on a bumpy ride. First, it took a dramatic plunge, bottoming out at record lows against the dollar. But then the tables turned and booming energy revenues helped lift it to a short-lived seven-year peak. Now, though, a bunch of factors are weighing the currency down again: two biggies are the governments lavish defense spending and dwindling export revenues as Europe shifts away from Russian energy. And then theres the fact that international sanctions mean no one wants to hold rubles not even Russians, whove been racing to convert their cash into foreign currencies. Plus, while the central banks aggressive rate cuts (from 20% to 7.5%) mightve seemed savvy last year, theyve only added to the currencys troubles. The outcome: the rubles taken a 25% hit this year, and was left languishing at a 16-month low against the US dollar on Monday.

Why should I care?

For markets: Interesting times.
While theres a laundry list of reasons for the rubles recent tumble, fingers are mostly pointing at the central bank. The emerging consensus: it needs to hike interest rates, and fast, to give the currency a leg up. But that moves no silver bullet, and it could backfire on Russias broader economy. Think stunted growth and pricier loans for companies and the government especially troubling given Russias hefty military bills.

The bigger picture: Only fuels Russian.
Still, theres some hope for Russia. A recent uptick in oil prices has helped its all-important oil and gas export revenue begin to rebound. And this sunny spell might stick around: Goldmans crystal ball predicts oil prices will hover around their current mark this year, and nudge up to $93 a barrel by mid-2024.

Originally posted as part of the Finimize daily email.

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