Russia reintroduces capital controls to support the ruble

Russia will reimpose some capital controls implemented at the beginning of the war, to prevent the price of its currency from falling further.

The Russian government announced that it will force dozens of export firms to convert revenue from foreign currency into rubles. Russia's financial watchdog Rosfinmonitoring will monitor the implementation of the new regulation with 43 companies in energy, metals, grains and other sectors.

On October 12, the ruble price increased by 3.4% after this information, to 96 rubles per US dollar. This is the strongest level in more than 2 weeks. Ruble also strengthened against euro and yuan.

"The main purpose of these measures is to create a long-term premise to increase transparency and predictability in the currency market. At the same time, this will also reduce speculation," Russian Deputy Prime Minister Andrei Belousov said in the announcement.

"By the end of the year, we think the ruble will rise to 88-92 rubles per US dollar," said Yevgeny Kogan - Professor at the Russian Higher School of Economics (HSE).

Employees count 1,000 ruble bills in a bank in Russia. Photo: Reuters

The above policies are similar to the regulations applied by Moscow in February 2022, just a few days after launching the military campaign in Ukraine. At that time, a series of Western sanctions caused the ruble to plummet, reaching a record low of 135 rubles per US dollar.

Russia at that time required export firms to convert 80% of revenue in foreign currencies into rubles, not to keep them in USD or euros. People are also not allowed to transfer money abroad. Foreign investors are also not allowed to sell Russian securities.

This year, the ruble has lost more than a third of its value against the US dollar. The reason is that the war in Ukraine affects Russia's export-oriented economy. Analysts say that Moscow's gas and oil revenues will hardly increase dramatically.

This is causing Russia's current account surplus to decline. In the first 9 months of the year, this number has decreased by nearly 80% compared to the same period last year. The Central Bank of Russia believes that the narrowing gap between export and import turnover contributes to the devaluation of the ruble.

Russia's budget deficit also skyrocketed after the war broke out. The Russian Ministry of Finance said the country's deficit in the first 9 months of the year was 1,700 billion rubles (17 billion USD). In the same period last year, they had a surplus of 203 billion rubles.

To deal with ruble devaluation and high inflation, the Central Bank of Russia raised the basic interest rate from 8.5% to 12% in August. Last month, they continued to raise it to 13%.