The global financial markets were thrown into chaos following the US government’s trade war, but a surprising trend has emerged: the Russian ruble has become the world’s top-performing currency this year. Its gains have far exceeded those of gold, a traditional safe-haven asset.
Year-to-date data reveals that the ruble has surged by 38% against the US dollar in over-the-counter trading. While the US dollar is under pressure due to escalating tariffs imposed by President Trump, the ruble’s performance is bolstered by several factors unique to Russia, including record-high interest rates.
Emerging market currencies typically struggle during times of global instability, as foreign investors often pull their funds. However, the ruble has not faced this issue. Sofya Donets, an economist at T-Investments, explained, “Capital controls have largely shielded Russia, and high borrowing costs also support the ruble.”
Despite ongoing Western sanctions, domestic policies and economic conditions in Russia are helping the ruble appreciate. This is beneficial for controlling inflation, but it could also reduce energy revenues at a time when Russia is funding military and social programs.
Persistent inflation has forced the Russian central bank to maintain a hawkish monetary policy, keeping the benchmark interest rate at 21% for several months. This has dampened demand for imports and reduced the need for foreign currency. Additionally, exporters are required to sell a portion of their foreign exchange earnings in the local market, further strengthening the ruble.
There are also signs that the thaw in US-Russia relations has boosted the ruble’s appeal. Iskander Lutsko, Head of Research at Istar Capital, noted that, despite the risks of sanctions, foreign investors are flocking to Russia for high-yielding ruble assets.
Moreover, Russian companies are increasingly turning to yuan loans to refinance costly domestic debt, pushing more foreign currency into the ruble.
Meanwhile, the US dollar index has fallen to a six-month low due to President Trump’s unpredictable tariff policies. This has raised concerns among investors, weakening confidence in the US dollar and Treasury bonds as safe-haven assets. In response, traders are selling US dollar assets and buying gold, which has risen by 23% since the beginning of the year.
Economists believe the ruble’s strength can be attributed to several factors: improved relations between Putin and Trump, a tight monetary policy cooling demand for imports, and Russia’s efforts to protect its economy from falling oil prices by using its sovereign wealth fund.
Another advantage for Russia is that it remains immune to Trump’s tariff policies, as trade ties have long been severed. Additionally, since June 13, 2024, dollar trading on the Moscow Exchange has been suspended due to sanctions, further complicating price discovery and creating a gap between domestic and international prices.
The Russian central bank has acknowledged that the ruble’s appreciation is partly due to improved geopolitical conditions and renewed investor interest in Russian assets. The central bank also pointed to Russia’s high benchmark interest rates as another contributing factor.
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