Russian Rouble Hits Four-Month High Amid High Interest Rates and Capital Controls

The Russian rouble surged to a near four-month high against the U.S. dollar, bolstered by high interest rates, state foreign currency sales, and capital controls. The central bank's hawkish stance ahead of its next meeting and increased forex sales further supported the rouble's strength.

The Russian rouble strengthened to a near four-month high against the U.S. dollar on Tuesday, approaching the 90 threshold on the support of high interest rates, state foreign currency sales and capital controls.

By 1508 GMT, the rouble was 0.8% higher at 90.07 to the dollar, its strongest point since Feb. 1. Against the euro, the rouble rose 0.7% to 97.93. It also gained 0.7% to 12.42 against the yuan .

Capital controls introduced by presidential decree in October 2023 require dozens of undisclosed exporting firms to deposit a high percentage of foreign currency earnings with Russian banks and then sell most of those proceeds on the domestic market. The controls were extended by a year at the end of April. The state's overall forex sales were sharply

increased to 6.3 billion roubles ($69.83 million) a day in May from 0.6 billion roubles a day in the previous month, further buttressing the Russian currency.

After three successive interest rate holds at 16%, the central bank has adopted a more hawkish stance ahead of its next meeting on June 7, with inflation remaining stubbornly high. Expectations for the start of the key rate cutting cycle have shifted to 2025, though the chances of a moderate cut later this year remain highly probable, Promsvyazbank analysts said on Tuesday.

Brent crude oil, a global benchmark for Russia's main export, fell 0.5% to $83.29 a barrel. Russian stock indexes fell. The dollar-denominated RTS index fell 0.2% to 1,185.0. The rouble-based MOEX Russian index lost 0.9% to 3,463.9. ($1 = 90.2205 roubles)