The Russian ruble reversed its months-long declines and vigorously rose against the dollar at the most significant daily pace in a couple of weeks. The Russian currency is also strengthening against the euro and the Chinese yuan as analysts see limited room for further ruble weakening, despite a tough situation with the country’s budget deficit after imposition of oil price cap by the EU. Currently, the ruble is up 0.9% against the dollar at slightly above 75, after reaching its intraday maximum at exactly 75.

On February 6, the Russian Ministry of Finance reported interim results of the federal budget as of January 2023. Compared to January 2022, budget revenues plunged by more than a third, while expenses have increased by almost 60%. As a result, an abysmal gap of 1.76 trillion rubles has been formed. That was the largest January deficit in modern Russian history since 1991. And more than half of the deficit planned for the entire 2023 year. However, latest events concerning failures of big banks, including Silicon Valley Bank and Signature bank, in the U.S., despite Biden Administration’s vow that there won’t be their bailout for account of the taxpayers, in reality suggested otherwise, so fears of a new wave of dollar printing sent world’s major currencies into tailspins.

Back to the ruble’s supporting factors. Domestic capital controls and a so-called fiscal rule reducing ruble volatility will also play a role. The ruble will likely stabilize in the range of 70-80/$ for weeks to come, and even strengthen to 73/$ by the end of the year (Sberbank’s analysts predict the exchange rate to be as low as 72/$ by that time), even as the oil price cap remains in place. The Ministry of Finance estimates the equilibrium dollar/ruble exchange rate, taking into account the budget rule, at a level not exceeding 85 rubles per $1 even under the scenario of a decline in Urals oil to $30/bbl. The probability that the ruble will be weaker than 85 rubles per USD is small, even with a more negative development of events.

For the time being, the USDRUB exchange rate will most likely remain in the current range of 74.5-76.5 rubles per $1, and the outcome of the meeting of the Central Bank of the Russian Federation on March 17 is unlikely to have a significant impact on the national currency.