Rolling through the Rough Road of the Russian Ruble

The Russian economy has been struggling for more than two years already. The effect of recession has been absurdly felt as Russians were reportedly swapping cash for washing machines and other electronic devices as the worth of their paper money became has collapsed big time.

Aside from its own people, one biggest flop of the recent crisis was its own currency, the Russian ruble, which logged to its worst-single day drop in 16 years.

The Crash of the Ruble

President Vladimir Putin blamed two things for the current financial crisis in Russia: the dramatic fall of oil prices and the Western sanctions imposed to the country for Putin’s actions in Ukraine.

Russia’s wealth relied heavily in oil and gas industry as it contributed about half of its revenue that is why when oil prices tumbled to $60 from $110 per barrel, the country suffered.

In effect, these economic and political headwinds hammering the country have weakened the currency intensely. According to Bloomberg, the ruble ranked first on 170 currencies as the worst performing in 2014. It has depreciated by a staggering 84% against the dollar and 67% against the euro.

The US dollar is now currently trading at above 60 rubles, almost double compare to just 33.2 rubles two years ago. At one point, it even touched the 80 level versus the greenback.

What made the situation worse was renewed fear on devaluation of the Russian ruble steered the stock and currency markets in a major collapse.

Irreparable road?

The fate of the Russian ruble has been a question mark although the government has taken some steps to revive the currency. The country’s central bank raised its interest rate to 17%, a hike of 6.5 percentage points but the rate hike did not work and produced reverse outcomes as the ruble touched an all-time high of 66.59 versus the dollar.

Presently, economists have a difficult time to predict how the ruble will gain some value back as the currency is highly dependent on world oil prices. But even if the ruble gained some grounds on the possible production cut by the OPEC, still Russia has built up huge capital outflow.

The only hope seen now is that a weaker ruble favors budget and exports and a strong demand for the currency by Russian companies paying their taxes may help the currency to regain some strength.