What is the secret behind the unusual strength of the Russian ruble?

The Secret Behind the Unusually Strong Russian Ruble

For a long time, the market has expected the Russian ruble to weaken. After all, the decline in revenue of the Russian Federation budget is partly related to the ruble exchange rate. Moreover, factors such as falling oil prices and geopolitical tensions are all unfavorable to the ruble. However, the current exchange rate of the dollar to the ruble remains around 1:83, rather than above 1:100 at the beginning of the year. What is the secret behind the unusually strong Russian ruble? Will this strength lead to a sudden collapse of the ruble?

The Russian ruble once again surprised with an unusually strong performance. Currently, the Russian federal budget faces difficulties in income growth and needs the ruble to depreciate moderately. Economists have been expecting the ruble to weaken since August. According to historical data, the ruble exchange rate usually declines every autumn. In addition, the current market is under multiple pressures, including falling oil prices, declining stock markets, emerging new geopolitical threats, and declining domestic interest rates. However, the dollar to ruble exchange rate remains stable at 1:83, far below the range of 1:101-104 in January 2025.

"We have observed the ruble's continued strengthening, with the dollar to ruble exchange rate dropping to 1:81-82, and the euro to ruble exchange rate dropping to 1:95-96. There is currently no significant factor that would cause the dollar or euro to ruble exchange rate to rise," said Yulia Handoshko, CEO of European brokerage firm Mind Money (formerly "Tselikh").

The core fundamental factors affecting the ruble exchange rate in recent years have been Russia's import and export trade activities. Although the scale of imports has decreased, the trend of trade surplus in Russia still exists. This means that the amount of foreign exchange flowing into Russia is still greater than the amount flowing out. However, the trade surplus in the first half of this year has decreased by 40% compared to the same period last year. "This year, both exports and imports in Russia are being constrained: exports are affected by sanctions, a strong ruble, and low oil and gas prices; imports are hindered by weak demand, high interest rates, and excess inventory," said Alexander Bachkin, an investment strategist at "Garda Capital."

The secret to keeping the ruble strong in 2025 seems to be hidden in a series of administrative control measures.

"The core factor influencing the current ruble exchange rate is the mandatory currency conversion requirement for foreign exchange income from export enterprises. Export enterprises selling a certain scale of foreign exchange will increase the demand for the ruble in the market, thus stabilizing the ruble exchange rate within the target range and avoiding excessive fluctuations in the exchange rate," explained Handoshko.

In addition, although foreign exchange can flow into Russia, the channels for foreign exchange to flow out are strictly limited. "The Russian government not only regularly strengthens the requirements for foreign exchange income conversion for export enterprises but also actively manages the liquidity of the RMB through coordinated operations between the Ministry of Finance and the central bank, significantly tightening capital outflow channels. The current limit for individuals carrying foreign currency cash abroad is 10,000 USD equivalent, and even if declared, more cannot be carried. For transfers via bank accounts abroad, the monthly limit is 1 million USD, but Russian banks have been excluded from the SWIFT system. Transfers through money transfer systems have a monthly limit of only 10,000 USD," said Vladimir Chernov, analyst at "Free Finance Global."

However, the over-strong ruble first affects the Russian federal budget —— the baseline exchange rate set during this year's budget preparation was 1 USD to 95 rubles, but the actual exchange rate is much lower than this level. Therefore, when converting foreign exchange income from exports into rubles, the actual budget revenue falls short of expectations.

"The strengthening of the ruble is one of the reasons for the budget deficit exceeding expectations."

"For every ruble the dollar to ruble exchange rate is lower than the budget's set level, it leads to an increase in the budget deficit by 130 billion to 150 billion rubles. That is to say, about one-third of the budget deficit is caused by the ruble being too strong," calculated Vladimir Yevstifeyev, head of the analysis department at Zenit Bank.

"In the Russian budget revenue, income from energy sales accounts for about 30%, so it is obvious that this year's oil and gas revenue has not met expectations, and the strong ruble is an important reason. This year's oil and gas revenue is expected to be 8.7 trillion rubles, while the figure was 11.1 trillion rubles last year, which may result in a decrease of more than 20%," added Bachkin. He stated that for export enterprises and the federal budget, an exchange rate of 1 USD to 90 rubles or higher would be more "comfortable", but according to the latest assessment by the Russian Ministry of Economic Development, the average exchange rate of the dollar to the ruble in 2025 will be 1:86.1.

Nevertheless, experts do not expect the Russian currency to depreciate significantly. They believe that the ruble exchange rate may weaken, but the process will be gradual.

"Only when multiple factors overlap could the dollar to ruble exchange rate break through 1:100, for example, if oil prices fall below $60 per barrel, interest rates accelerate downward, export channels face new restrictions, or there is a significant increase in foreign exchange reserves to fill the budget gap."