Russia's ruble has nowhere to go but down as capital flight continues in aftermath of Wagner mutiny attempt, economist says
- The Russian ruble has nowhere to go but down amid the war in Ukraine, an economist said.
- The ruble is one of the worst-performing currencies and fell Friday to nearly 92 per US dollar.
The Russian ruble is one of the worst-performing currencies this year, falling about 24% to nearly 92 per US dollar, and the decline could get even worse.
"The ruble doesn't have anywhere to go but down," Konstantin Sonin, a University of Chicago economist, said in a tweet Thursday.
The volatility in the ruble surged in recent weeks after the leader of the Wagner mercenary group, Yevgeny Prigozhin, staged a short-lived revolt against the Kremlin.
The uncertainty in Russia has sparked a surge in demand for other currencies, with Bloomberg estimating that $43.5 billion of retail deposits ditched the ruble in favor of other currencies since the war began in February 2022.
Sonin said that while the ruble surged in 2022 because of "weird" macroeconomic effects, including a dramatic fall in imports, those effects were over and the currency faced several headwinds that could push it to record lows.
"What remains is continuing capital flight, decreasing budget revenues, both oil/gas and domestic taxes, declining real incomes, CB reserves lost because of the war," Sonin said, referring to central-bank reserves.
The decline in oil prices has been an especially difficult challenge for Russia to navigate this year, as much of its country's revenues are derived from the sale of the commodity.
Crude-oil prices have dropped about 10% year to date, and the G7 imposed a $60-a-barrel price cap on seaborne crude, dimming Russia's chances of getting full market value for its oil sales.
Russia's revenues from the sale of oil slumped 50% in the first quarter of the year, leading the country to report a $42.5 billion budget deficit in the first four months of 2023. And the country's war efforts aren't helping its broader economy as it suffers from a brain drain among its high-skilled workforce.
With Russia's economy facing mounting headwinds amid its war against Ukraine, Sonin expects the ruble to continue its decline, though "not necessarily as fast as in the last couple of months," he said.