Collapse of the Russian Ruble

March 03, 2022

This week, as the crisis in Ukraine continues to evolve, we look at the devaluation of the Russian ruble amid retaliation from the West. In response to Putin’s invasion of Ukraine, allied governments are imposing financial sanctions, companies are pulling back from operations in Russia, and investors are looking to exit Russian investments. As a result, the ruble, now worth less than a penny, has fallen more than 30% over the last week. The pace of the move surpasses even that seen in 2014 when Russia moved to a floating exchange rate amid pressures following its annexation of Crimea, resultant sanctions, and the sharp drop in global oil prices. In 2014, Russia was able to leverage its mountain of foreign currency reserves to eventually help stabilize the ruble. That ability is severely restricted this time following the decision to cut off certain Russian banks from SWIFT, the financial messaging system used by more than 200 countries to link money transfers between the world’s banks.

The sharp devaluation of the ruble could shock Russia’s economy. Inflation in Russia surpassed 9% as of February 25th, above the country’s 4% target. The Russian central bank on February 28th more than doubled its benchmark interest rate to 20% in an attempt to prevent a run on banks. The line the world is walking to manage inflation without negatively impacting growth is now much finer in Russia, with reverberations likely to be felt globally. Inflation, the path of rising interest rates, and geopolitical tensions remain key risk factors for investors this year, and we will continue to keep clients updated on developments and any related portfolio recommendations.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.