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Ruble Surges to Two-Month High as Demand for Cash Explodes

Forex Sep 23, 2022 10:51AM ET
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By Geoffrey Smith 

Investing.com -- The Russian ruble surged nearly 3% against the dollar on Friday amid a surge in demand for cash, as Russians emptied their savings accounts in the wake of Wednesday's mobilization call by President Vladimir Putin.

The ruble rose 3% to trade at 57.08 against the dollar amid reports of a nine-fold increase in demand for cash on the day after Putin said he would call up 300,000 reservists to bolster his campaign in Ukraine. The announcement triggered an exodus of men of fighting age, causing major tailbacks at border crossing points with Georgia, Finland, and Mongolia, among others.

The rise in demand for rubles led to a squeeze in interbank ruble rates, pushing the currency up in a market that has operated under heavy capital controls since the invasion of Ukraine in February. The surge in demand for cash is still far from the heights of February when Russians pulled over 1.4 trillion rubles from the banking system. That's around 10 times the withdrawals seen on Thursday.

Russia's stock and bond markets also resumed their decline Friday after a brief stabilization on Thursday: the benchmark MOEX index fell 4.3%, while the yield on the 10-year Russian government bond rose 25 basis points to 10.76%. It's risen over a full percentage point in the last week.

The rise in bond prices came as Bloomberg reported that the Kremlin plans to raise defense spending by 43% next year, a move that, along with the mobilization of reserves, suggests that Russia is resigning itself to a long war after initially hoping to overcome Ukraine with a World War 2-style 'Blitzkrieg' in February.

Russia still has substantial financial reserves - at least on paper - with which to finance a war, but its budget situation has worsened as the war has dragged on. A collapse in corporate income tax receipts from the non-oil economy has been made worse by the recent decline in oil prices and a self-imposed cut to export revenues from natural gas.

After posting a budget surplus of 1.37 trillion rubles in the first half of the year, the budget appears to have posted a deficit of over 1.2 trillion rubles in July and August.

A government document cited by Russian newswires earlier in the week suggested that oil production - traditionally, the federal budget's most reliable cash cow - is likely to fall around 6% next year under the impact of western sanctions and the consequent disruption to its pipeline system.

Ruble Surges to Two-Month High as Demand for Cash Explodes
 

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Comments (3)
Pepe Grek
Pepe Grek Sep 23, 2022 3:28PM ET
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S For 8 years, Russia patiently waited for the West to shoot itself in the foot in desperation, and everything now indicates that it paid off em píšte svoje myšlienky
carlos guo
carlos guo Sep 23, 2022 12:06PM ET
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Putin laughing his A off at how he has exposed how fragile the "New World Order" is. Billions of dollars being funneled into the pockets of the corrupt actor in Ukraine to fuel his coke-addiction with as he bans opposing political parties and consolidates the media like democrats want to do in the US, while calling Putin the fascist. Last week Russian stocks hit highs of the year, Ruble remains strong relative to the dollar, and inflation in Russia is lower than in much of the West. All that this "war" in Ukraine has done is strengthen the Eastern block, and the US is only in it to distract from the Brandon's domestic failures as his approval sits near lows, and has dropped more than any other president in modern history. And these "financial journalists" absolutely refuse to use the word "Biden" when talking about the US economy after 4 years of crying about Orange Man every day.
Steffen vdm
Steffen vdm Sep 23, 2022 11:57AM ET
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May the Russian dictatorship implode!
 
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