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Reuters analysis: Russians will become poorer and poorer. The return of the ruble is misleading

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The dramatic recovery, after the ruble fell by almost half in the first seven trading sessions since the February 24 invasion, is partly due to a real improvement in Russian finances as energy export revenues rise and imports shrink. But the assumption that this is proof that Russia’s economy has recovered despite the sanctions would be misleading at best, writes Reuters.

The ruble is also artificially inflated by capital controls, and as the country’s gross domestic product will shrink by 10% -15% this year, Russians are becoming poorer and poorer as rising inflation devours their earnings.

“This return of the ruble should not be seen as a market outlook for Russia’s medium- and long-term forecasts,” said Ulrich Leuchtmann, an analyst at Commerzbank.

“Market forces cannot drive the ruble as they can with the euro or the dollar,” he added.

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Since the beginning of the war, the ruble has been divided into an internal market for local institutions and an offshore market for Western banks and investors who transact with entities that are not subject to sanctions. Trading volumes decreased significantly in both markets.

The White House said on Thursday that Moscow was artificially supporting the ruble, and the role of official measures in recovery is easy to identify.

In response to harsh sanctions imposed by the West, Russia has raised interest rates by 20 percent, restricted local businesses’ access to foreign currency, banned citizens from withdrawing more than $ 10,000 in foreign currency for six months, and prevented banks from selling foreign currency.

Foreign investors have been banned from selling their assets, and Russian President Vladimir Putin on Thursday urged foreign buyers to pay in rubles for Russian gas on April 1st.

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“European countries are not willing to do this because it would have a positive impact on the ruble market,” said Danske Bank chief analyst Minna Kuusisto.

Analysts believe Putin’s request is an attempt to undermine international sanctions and strengthen the ruble, and Kuusisto noted that Russian gas sellers have so far not converted all foreign exchange earnings into rubles.

In the long run, the outlook for the ruble is not good. Russia’s isolation from the West will probably mean fewer buyers for Russian exports, and if the price of oil falls, the ruble will struggle. With half its frozen gold and foreign exchange reserves, Russia has less chance of defending its currency.

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