18 April 2015

Ruble on the Rebound Russia’s currency has strengthened more than any other this year. What does that mean for the West’s plan to pressure Moscow out of Ukraine?

APRIL 15, 2015J.

Ruble on the Rebound

The Russian ruble is rebounding, outpacing all other world currencies against the dollar this year. The 20 percent recovery this month alone stands in stark contrast to last year, when U.S. officials smugly pointed to Russia’s plummeting currency as proof that Western sanctions against Moscow for meddling in Ukraine were working.

That doesn’t mean the sanctions no longer have teeth. But it does add another complication to Western leaders’ already difficult task of trying to forge a lasting peace in Ukraine.

Some analysts have ascribed the ruble’s upward march — it took almost 70 rubles to buy a dollar at the end of January, compared to 52 now — to the tenuous cease-fire agreement reached between Ukraine and Russian-backed separatists in February. Others see the recovery hinging on events outside of Ukraine: Rising oil prices could be giving the ruble a boost, since the Russian government is dependent on money coming in from the country’s state energy giants. And yet another theory is that the ruble is not really strengthening, but just recovering to a reasonable level after plummeting too far last year.

The dramatic turnaround has prompted some investors to scramble to get back in. Bond investors, who had steered clear of Russia, are now returning in droves, according to Bloomberg. The move is a little counterintuitive because bond yields have actually dropped as the ruble has gotten stronger, which means investors are demanding less of a premium to hold Russian bonds, as Russia seems like less of a risky bet.

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