In recent weeks, the Russian ruble has experienced a significant depreciation against both the Tajik national currency, the somoni, and major global reserve currencies.
The official exchange rate, set daily by the National Bank of Tajikistan (NBT), fell by almost 5.0%, from 1000 rubles per 121.5 somoni on March 13 to 115.3 somoni on March 19.
The ruble's gradual devaluation began following the U.S.-Israel war on Iran on February 28. Since then, the Russian currency has depreciated by 6.4% against the somoni.
During the period from February 28 to March 19, the somoni strengthened by 1.2% against the euro, rising from 11.22 somoni per 1.00 euro on February 28 to 11.08 somoni on March 19.
However, the U.S. dollar appreciated by 1.0% against the somoni, increasing from 9.51 somoni per dollar on February 28 to 9.60 somoni on March 19.
The weakening ruble has a negative impact on the income of families of Tajik migrant workers who rely on money transfers from them from Russia. More than 90% of these transfers are made in rubles.
According to the NBT’s directive, since 2016, money transfers in rubles are paid out to recipients in Tajikistan exclusively in the national currency, the somoni. Therefore, the depreciation of the ruble means a decrease in the purchasing power of ruble transfers. Even if a migrant sends the same amount in rubles, their family in Tajikistan will receive fewer somoni, which limits their financial capacity to cover daily expenses.
What is happening to the ruble?
Since the beginning of March, the ruble has depreciated by 7.8% against the dollar, according to Russia’s Central Bank. On March 1, 1 USD was equivalent to 77.27 rubles, while on March 19, the exchange rate has risen to 1:83.13.
Russian experts attribute the ruble's decline to geopolitical tensions and economic challenges, particularly the ongoing conflicts involving the U.S., Israel, Iran, Russia, and Ukraine. The expert’s note that the supply of foreign currency in Russia has significantly decreased, increasing pressure on the ruble.
It is expected that the dollar will continue to appreciate throughout the spring due to the gradual reduction in Russia's key interest rate, a decrease in foreign currency sales by Russian exporters, and the moderate recovery of domestic imports, which in turn will raise the demand for dollars.
Key reasons for the ruble's depreciation
1. Reduced demand for rubles and increased demand for dollars — Investors and market participants tend to move towards "safe-haven" currencies like the dollar and euro during periods of uncertainty, such as geopolitical risks or anticipated economic troubles. This increases demand for these currencies and weakens the ruble.
2. Reduced foreign currency supply — When exporting companies sell less of their foreign currency earnings (due to a drop in exports or difficulties repatriating funds), the supply of dollars and euros on the market decreases. This creates a currency shortage, making the ruble less attractive.
3. Expectations of reduction in Russia’s key interest rate — A potential decrease in Russia's key interest rate leads to lower yields on ruble-denominated assets, making the ruble less appealing to investors. This can result in capital outflows into foreign currencies, intensifying pressure on the ruble.
4. Geopolitical and external economic factors — Periods of uncertainty, such as concerns about sanctions, external trade, or energy prices, cause investors to reduce positions in riskier currencies, including the ruble. This further weakens the ruble.
5. Long-term vulnerability of the ruble — Although the ruble has recently faced significant pressure, it remains highly sensitive to external economic factors, such as sanctions, export revenues, and global oil and gas prices. These factors could amplify the ruble’s weakening trend, especially in times of crisis expectations.
The ongoing challenges facing the ruble highlight the broader vulnerability of the Russian economy to both internal and external pressures, including geopolitical conflicts and global economic trends.
