Ruble Surges As Russia Considers Looser Capital Controls

The ruble’s blistering rebound picked up pace on Monday, ratcheting up pressure on Russia to ease a key capital-flow control that’s underpinned the currency’s recovery.

With the gains now threatening to hurt budget revenue and exporters, a decision to cut the share of hard-currency earnings that exporters convert into rubles could come as early as this week, according to two people familiar with the matter. The mandated proportion could be reduced to 50% from 80% currently, the people said, who requested anonymity because the details of the plan aren’t public.

The ruble’s rebound has left it more than 30% stronger against the dollar than it was before Russia invaded Ukraine on Feb. 24. Authorities have been gradually easing the strict limits on foreign-exchange operations imposed in the days after the invasion to stem a sharp drop in the currency.

The restrictions, combined with a collapse in imports amid the sweeping sanctions the US and its allies imposed on Russia, all but eradicated demand for foreign currency just as supply surged thanks to high prices for largely unsanctioned energy exports.

The Economy Ministry said late Monday that the ruble’s appreciation is reaching a peak and capital flows and imports will adapt, taking pressure off the rate, Tass reported.

A full “lifting of capital controls would return the ruble to the range of 70-80 versus the dollar that would be much more comfortable for the economy,” said Tatiana Orlova of Oxford Economics. “This level of the FX rate is already included in prices. Therefore, the return to this range would not fuel inflation.”

The latest bout of ruble strength appears to be fueled by European companies complying with President Vladimir Putin’s demand that they switch to paying in Russia’s currency for natural gas.

In just four trading sessions the ruble has jumped 13% against the euro, climbing 6.2% to 59.15 on Monday alone. The Russian currency was up 5.2% at 57.2700 against the dollar, poised for its strongest close since April 2018.

Sanctions on the central bank’s reserves mean it can’t conduct the foreign-exchange purchases it did regularly before the invasion. The Tass news service first reported the plans to reduce the requirement for mandatory sales by exporters.