The Russian rouble has dropped below 40 to the dollar for first time as the currency comes under renewed pressure and is likely to test further record floors as the week progresses.
Sanctions, global market shifts, a fall in demand for commodities and a weak oil price can all partially explain Russia’s current economic weakness. There are few signs this will change any time soon.
“All this quite significant rouble weakening was mostly related to the sanctions story, to concerns about the negative effects for the Russian economy and for corporates’ ability again to pay their external debt. But at the same time now the sanctions issue has somewhat stabilised, and therefore the next factor the market is looking at is the falling oil prices,” said Dmitry Polevoy, chief economist at ING Russia.
The central bank had to spend some foreign dollar reserves on Monday to bolster the rouble, and will not be able to continue that for long, especially as pulling the other way, exporting companies are busy buying dollars on the market as sanctions freeze them out of bank lending.
If ordinary Russians start converting their rouble savings into dollars, the heat really will be on.