Russian Ruble Rises to Over 3-Year High

The Russian ruble strengthened to 71 per USD in May, its highest in over three years, as higher energy prices increased the influx of foreign exchange in the Russian financial system. Oil and gas prices surged since the start of March after the outbreak of war in the Middle East suspended energy exports from the region, lifted prices of key commodities, and drove major energy consumers to turn to Russia for supply alternatives. The jump in exports was consolidated by the Russian trade surplus rising to its highest in two years in March. Consequently, foreign currency sales under the government's fiscal rule from energy sales tripled to $7.3 billion in April. On top of that, the series of sanctions and the slowdown in the Russian economy limited domestic demand for foreign goods, hampering the purchases of foreign currency that further strengthened the ruble. Meanwhile, the Bank of Russia signaled it may be done cutting rates as pro-inflationary risks remain.

The Russian Ruble touched 74.26 against the USD, the highest since May 2023. Over the past 4 weeks, US Dollar Russian Ruble lost 5.24%, and in the last 12 months, it decreased 9.68%.

The Russian ruble hovered around the 75 per USD level in April, its strongest in three years, amid support from higher energy prices and elevated interest rates by the Bank of Russia. Oil and gas prices held their surge as the US and Iran prolonged their blockades of commercial vessels trough the Strait of Hormuz, supporting demand for alternative sources of oil and natural gas. On top of that, the US suspended selected sanctions on Russian oil to alleviate the global supply crunch. Not only did the developments support foreign exchange inflows from oil exporters, but a portion of energy exports are being negotiated in rubles as the Russian financial system is excluded from dollar-denominated transactions. The initial plunge in the currency following the outbreak of the Iran conflict drove Russia's government to stop buying foreign exchange with energy revenues to fill its war chest. Meanwhile, the Bank of Russia signaled it may be done cutting rates as pro-inflationary risks remain.