Soaring ruble set to come back down to earth

To the surprise of many, the first four months of 2025 have turned out to be one of the best periods for the Russian currency in recent years. The ruble, which ended 2024 with its worst performance since 2022, has suddenly started to strengthen, boosted by a host of factors. A strong Russian currency helps slow inflation, but also hits exporters and the Russian budget. Analysts expect the period of strength will not last long and that the ruble will start to weaken again soon.

Since the beginning of 2025, the ruble is up against the U.S. dollar — one of the key benchmarks for assessing the Russian currency — by about 21%. While in January the dollar was worth around 103 rubles, it now trades at around 81 — a level not seen since spring 2023. Russian consumers have only benefited from this: they began to buy foreign holidays at more affordable prices, and inflation inside Russia has begun to slow down, according to the Central Bank’s analysts.

There are many reasons behind the recent strengthening:

1. Initially, the ruble climbed on political factors — chiefly, the return of Donald Trump to the White House. The first official talks between Moscow and Washington in three years gave investors hope for a possible easing of U.S. sanctions, increasing interest in ruble assets and the Russian stock market. Russian shares, however, proceeded to lose all of those gains as progress on a possible Ukraine truce and sanctions relief appeared to peter out.
2. In March and April, exporters made major tax payments which additionally supported the ruble, Russian analysts said. Corporate taxes increased in Russia this year meaning even larger payments, which also played a role.
3. A decline in imports has also pushed the ruble higher. In the first quarter of 2025, imports were down by 3% year-on-year. The biggest contributor was falling vehicle purchases. This was due to a strong increase in the recycling fee (which is ‘sewn’ into the price of a car) from 2025 and a general decline in demand amid high inventory levels and high borrowing costs (with the base rate still at a two-decade high of 21%), the Central Bank said.
4. Russian companies are also seeking to refinance exorbitantly expensive ruble-denominated loans using more affordable yuan-denominated loans, which results in additional conversion of foreign currency into Russian currency. For example, the average rate for a loan of up to 30 days in rubles is 29.49%, while the average rate in yuan is 4.99 per cent.
5. The global trade war has hit oil prices, causing the Russian treasury to miss oil and gas revenues. Consequently, the Russian finance ministry has had to sell foreign currency under the budget rule. When oil is above a certain cut-off price, windfall profits go into the sovereign wealth fund, but when they fall below that, the fund is drawn down to replenish day-to-day spending. (We previously explained more about that here). Drawing down from the fund essentially means buying rubles, something that could also be supporting the Russian currency.

Exporters are not happy about the strong ruble, as it means their products are less competitive internationally. The contribution of exports to the revenue structure of metallurgical companies, for instance, is huge. Exports make up 85% of Nornickel’s revenue, and 70% for aluminum giant Rusal. Oil exporters' revenues also depend on the ruble exchange rate, which, accordingly, determines the amount of taxes paid to the Russian budget. When the ruble is weak, revenues and payments to the treasury are higher. “The stability of the budget is the result of fine-tuning: when the ruble exchange rate is above 90 per dollar, revenues grow, while below, there are problems. Therefore, the government will keep the ruble weak, but not failing,” says Daniil Tyun, senior analyst at investment and analytical company AMCH.

Despite the ruble’s recent strengthening, analysts believe the currency is set to weaken. If the price of Brent crude oil falls to $50-60 a barrel due to the inevitable blow to global economic growth from the trade war (it is currently trading at $66 per barrel), the ruble may return to 95-100 against the U.S. dollar over the summer, further slumping to 100-110 during the fourth quarter,according to the asset management company Astra. At the moment the ruble looks excessively strong, so by the end of the year it could weaken to 95 against the dollar, Raiffeisenbank analysts expect. The economy minister is preparing for 98.7 rubles per dollar by the end of the year.

Why the world should care

The dollar exchange rate still plays an important role in Russia, despite sanctions. The cost of many imported goods and services are still influenced, directly or indirectly, by that rate. A suddenly stronger ruble has been a boon for thousands of Russian families, but it is not likely to last much longer.