Russia’s rouble has been hit hard by mounting geopolitical tensions, as Moscow’s military build-up on the border with Ukraine and the prospect of fresh US sanctions unnerve investors. The country’s currency has dropped almost 5 per cent in the past month, hitting a five-month low of around 77 to the US dollar. The rouble’s fall over the period has been among the most severe of any major emerging market currency, trailing only the embattled Turkish lira.
Analysts had expected the rouble to bounce back in 2021 after it fell by 16 percent last year because of the pandemic and the related fall in oil prices. But even as Russia’s resurgent economy prompted the economy ministry to adjust its growth projections upwards to 3.8 percent last week and Russian companies have rushed to take advantage of the equities boom to sell shares, the rouble has hinted at Moscow’s macroeconomic vulnerability to strained relations with the west.
“Geopolitics is what’s moving the currency market right now — worries about tougher sanctions from the US, which there were more than enough triggers for over the last few weeks even before you added in the intensifying situation on Ukraine’s eastern border,” said Sofya Donets, Russia & CIS economist at Renaissance Capital.
Timothy Ash, chief strategist at BlueBay Asset Management, echoed that sentiment, saying: “It’s crystal clear that right now concerns about geopolitics are what’s affecting the rouble.” The worries have also hit Russia’s sovereign bond market, a likely target for US sanctions expected to be announced in response to the SolarWinds hack, Moscow’s alleged meddling in the 2020 presidential election, and the poisoning and jailing of Alexei Navalny, president Vladimir Putin’s most prominent opponent.