As the U.S. dollar against the ruble rose strongly above the 100 mark this week, the sharp depreciation of the ruble exchange rate also made the Russian government helpless to resume some of the capital control measures taken at the beginning of the Russia-Ukraine conflict last year to prevent the ruble from further weakening. A set of industry statistics shows that the ruble is the fourth worst-performing currency among emerging market currencies this year.
The Russian government announced on Wednesday local time that it will require 43 large Russian export companies, including major oil producers, to forcibly sell a certain proportion of overseas sales profits in the domestic market to stabilize the ruble exchange rate. Russia imposed similar requirements last year when the ruble plummeted, but then scrapped them after the ruble recovered.
This decree on the mandatory sale of foreign exchange will affect large Russian companies in the export fuel, energy, metallurgical, and chemical industries.
In the past few months, as the cost of financing the Russia-Ukraine conflict has continued to rise, inflation has increased in Russia, and the ruble has begun to fall again.
The Central Bank of Russia held an emergency meeting in August and violently raised interest rates by 350 basis points. Last month, it announced a 100 basis point hike to 13%. However, these interest rate hikes failed to prevent the ruble from falling. This week, the ruble fell below the important psychological price of 100 rubles per US dollar.
Russian First Deputy Prime Minister Andrey Belousov said in a statement that the main purpose of these latest measures is to create long-term conditions, increase the transparency and predictability of the foreign exchange market, and reduce the possibility of currency speculation.
The Russian government will finalize the volume and other details of a forced-sale mechanism that will require some companies to report their foreign exchange transactions to the government. The government statement cited a presidential decree imposing capital controls, but the document has not yet been officially released.
Industry analyst Alexander Isakov said, "The fact that the Russian government and central bank seem to believe it is necessary to coordinate the buying and selling of hard currency indicates that the local foreign exchange market is deteriorating. The local market is now considered too shallow and too illiquid to operate without regulation. In the long term, these measures are unlikely to reduce pressure, but may increase the supply of foreign exchange in the coming weeks and months."
Industry statistics show that the ruble is the fourth worst-performing emerging market currency this year. The ruble has fallen by nearly 26% against the US dollar during the year, second only to the Argentine peso, which has fallen by more than 49%, the Nigerian naira, which has fallen by more than 41%, and the Turkish lira, which has fallen by nearly 33%.