The Russian minister of economic development warned Wednesday that Russia’s ruble could be so strong that it could affect export-dependent businesses.
The ruble experienced an incredible recovery after falling to all-time lows during the first weeks following Russia’s intervention in Ukraine in February. This month, it reached its highest exchange rate since May 2015.
Wednesday’s official Russian Central Bank exchange rate was 52.9 rubles per dollar. Some see this as an indication that Russia is able to weather Western sanctions. However, Russia’s exports are more expensive because of the strong ruble.
Russian news agencies quoted Maxim Reshetnikov, economic development minister, as saying, “I believe my colleagues will confirm” that profitability in many industries, even export-oriented has turned negative at the current exchange rates.
He said that if such a situation continues for several months, many enterprises might consider curtailing investment and adjusting production plans to reduce production volumes.
Elvira Nabullina, head of the Central Bank, suggested this month that Russia should reorient its economy to reduce dependence on export revenues.
The ruble’s strength is due to the fact that Russia has been able to make billions from commodity exports this year, thanks to rising oil and natural gas prices. Russia has been importing less from abroad due to the wide-ranging sanctions.
“We have seen a decline in Russian imports due to Western sanctions, Tatiana Orlova, Oxford Economics’ lead emerging markets economist, stated recently to CBS MoneyWatch.
Russia’s central banking imposed capital controls earlier this year to stop money leaving the country. This included a ban on foreign investors in Russian stock and bonds receiving dividend payments from the country and a requirement for exporters to convert some of their capital into rubles. As it attempts to lower the ruble’s price, the bank has relaxed its conversion requirements.
