USD/RUB, GBP/RUB: Russian ruble currency control could backfire

The Russian ruble has rebounded sharply in the past two days as investors react to the actions by Kremlin to stem its sell-off. The GBP/RUB pair retreated to a low of 120, lower than the year-to-date high of 129,44. Similarly, the USD/RUB exchange rate fell from 102.27 to a low of 92.24.

Putin fights to save the ruble

Vladimir Putin, Russia’s president, is fighting to save the plummeting ruble. In a statement on Tuesday, the Bank of Russia decided to hike interest rates by 3.5% to 12%. The rate hike is meant to incentivise more ruble demand by savers.

At the same time, Kremlin is considering imposing capital controls in a bid to limit the currency’s flight. Some of these measures include ordering large companies to convert their foreign cash into ruble. 

Exporters could also be ordered to sell up to 80% of their foreign currency revenue within 90 days after delivery. Companies that fail to comply will be banned and punished. Russia will aso consider halting the payment of dividends to countries abroad and canceling import subsidies.

The Russian ruble has been plummeting in the past few months because of the trade imbalance in the country. While Russia is still selling crude oil and natural gas, the government is spending more money to fund the war. The result is that its foreign reserves have dropped while deficit has widened.

At the same time, many Russians and companies have increased their exposure to foreign currencies, especially the dollar. 

Still, there are concerns that these capital control measures will backfire since it could lower business activity in the country. Instead, the real solution for the ruble is to increase exports and reopen the country. These measures would only work if the war in Ukraine ends. In a note, an analyst told FT:

“There are two levers that Russian authorities can use to support the rouble. The first one is to avoid the [oil] price cap [imposed by western countries] more effectively and increase export revenues to enhance the current account surplus. The second one is capital controls.”

GBP/RUB forecast

The GBP/RUB has been in a strong bullish trend after bottoming at 62 in 2022. On the daily chart, the pair has remained above the 50-day and 25-day moving averages, signaling that buyers are in control. It is also approaching the 50% Fibonacci Retracement level. The pair is also above the ascending trendline shown in blue.

Therefore, I suspect that the GBP to ruble will continue rising, with the next target to watch being the 50% retracement point at 132.90. If this happens, the USD/RUB exchange rate will also continue rising and retest the 50% retracement point at 102.33, as I predicted here.