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Ruble Hits 2-Year High

by Carl Steward
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Close-up view of Russian rubles. Five thousand banknotes.Ruble Hits 2-Year High

On Friday, the Russian ruble surged to a more than two-year high against the euro, aided by capital controls, as Russia looked to make a last-ditch effort to avert default. The central bank lowered interest rates by 300 basis points, 14 percent.

The finance ministry appeared to do a last-minute U-turn to prevent a default, paying several already-overdue international debt payments in dollars after paying them only in rubles.

The Bank of Russia dropped its key interest rate by 300 basis points for the second time this month; this action shocked economists who had predicted a lesser fall.

Recently, the ruble has strengthened as export-oriented firms sold their foreign exchange earnings to meet local liabilities that could top 3 trillion rubles ($43 billion) this month.

The ruble had fully recovered to pre-February 24 levels when Russia launched a “special military operation” in Ukraine, resulting in unprecedented Western sanctions, including a freeze on Russia’s reserves and steps to limit Russian banks’ access to the global financial system.

Shift to The Ruble in Kherson

Kherson, in southern Ukraine, was the first major city to fall to Russian forces. The city was encircled within the first several days of the assault; significant areas of it lost access to water, electricity, and food. It may do so by installing a Russian-backed administration, as it did in Donetsk and Luhansk in 2014; it could oust local politicians and put pro-Russian elites in control of territory ripped from Kyiv’s authority; which Russia invaded the same year.

A referendum in Kherson would be held to maintain the “veneer of legality” for direct annexation of southern Ukrainian areas or acknowledgement of their independent statehood and potential incorporation into Russia. Kherson, a Black Sea city of around 300,000 people, is strategically vital to Russia. Moreover, Kherson, located directly on the Russian-annexed Crimean peninsula, serves as a gateway to southern Ukraine. It has crucial sea and river ports; moreover, it is on the Dnieper River, which allows Russia to shut off Ukrainian forces from the Black Sea coast.

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