In Putin vs Trump tiff, rouble trouncing dollar with 45% rise against US currency this year

The Russian rouble witnessed a 45 per cent rise against the US dollar since the start of the year, raising questions about the global dominance of the American currency. With the latest figures, the rouble has become one of the world’s best-performing currencies. However, experts warned that the sharp rise in its value can be a double-edged sword for the heavily sanctioned Russian economy.

It is pertinent to note that the strength of the rouble means that the dollar-denominated energy revenues generate fewer roubles for the Russian budget. The Russian businesses argued that the currency’s rise in value is making exports more expensive to buyers purchasing in dollars or any other currency.

Despite early warning signs, Russian President Vladimir Putin’s central bank governor, Elvira Nabiullina, argued that a softer currency might be a sign of economic vulnerability. Nabiullina, who on Friday announced the latest interest rate decision and said that the exchange rate is not just there to please exporters, stressed that the strong rouble is a product of the tight monetary policy needed to fight stubbornly high inflation.

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Why has the rouble risen so much against the dollar?

This year, the rouble rose about 45 per cent against the dollar. According to Reuters, the rise is primarily driven by the central bank’s tight monetary policy and optimism after US-Russia talks in February raised hopes for a peace settlement in Ukraine.

In light of this, interest rates on deposits have also soared above 20 per cent, making the currency attractive to savers and as a speculative trade for its yield. At the same time, high borrowing costs have slowed imports, reducing demand for foreign currency. The weakness of the American dollar after Trump announced his reciprocal tariffs has also helped the rouble in this regard.

Although the central bank says there is a freely floating exchange rate, it has been selling the Chinese yuan, its only major intervention tool, to support the rouble. When the rouble strengthens against the yuan, its rate against the dollar strengthens as well to avoid arbitrage.

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It is pertinent to note that the stronger rouble helps the regulator fight inflation by making imports cheaper. Some even alleged that increasing the value of the rouble can be part of a deliberate strategy. The rouble is also supported by currency controls introduced after the start of the war in Ukraine to prevent capital flight, but recently exporters have been repatriating more foreign currency revenues than they are obliged to, Reuters reported.

What lies ahead

For months, the experts have been warning that the Russian rouble is overvalued. The Russian central bank is widely expected to cut interest rates at its upcoming meeting. If it does, market rates will fall as well, prompting savers to pull money from rouble deposits. That could weaken the currency.

Apart from this, a bigger test is awaiting the Russian currency in early September when a 50-day deadline set by US President Donald Trump for Russia to show progress toward peace in Ukraine expires. If new sanctions targeting buyers of Russian oil are imposed, it can weaken the currency as well.

It is pertinent to note that the last time the rouble weakened significantly was in November 2024, after Washington sanctioned Gazprombank, which had handled oil and gas payments.